ASCENDAS (INDIA) PRIVATE LIMITED,CHENNAI vs. ACIT, CHENNAI

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

ITA No.1255/Mds/2015. :- 2 -: passed u/s.143(3) and 250 of the Income Tax Act, 1961 (herein after referred to as ‘the Act’).

The assessee has raised the following grounds:- 2.

‘’2. The CIT(A) failed to accept the fact that Assessing Officer’s action of effecting an addition to income is arbitrary and lacks jurisdiction.

The Brief facts of the case that the assessee is in the 3. business of development of properties and rendering consultancy services and filed return of income on 29.10.2005 declaring loss of �3,08,96,605/- and was processed u/s.143(1) of the Act.

Subsequently, as per scrutiny norms notice u/s.143(2) of the Act was issued and ld. Authorised Representative of assessee appeared from time to time and filed information. The main business of the assessee being rendering project management services and asset management services to its group companies and engaged in promotion of properties including IT parks all over the world. The income of the ITA No.1255/Mds/2015. :- 3 -: assessee being service charges and other incomes and service charges pertain to services rendered during the year as under:-

� (i) Ascendas IT Park Chennai Limited 1,69,09,862/- (ii) Information Technology Park Limited 3,82,495/- (iii) L & T info-city –Ascendas Limited 44,32,139/- ----------------- 2,17,24,496/- ---------------- As per profit and loss account net revenue of the assessee company is �2,76,63,794/- after considering the expenditure of �5,62,17,729/-.

The assessee company rendered services to the group companies but on perusal of the service charges collected comparatively lower from the group companies. The personal costs incurred is more than the twice the Revenue collected. The ld. Assessing Officer further verified the shareholder pattern of the group companies and nature of services. The only question arises for reasons and basis of charging service charges to its sister concern and the assessee company replied through letter dated 08.08.2007 as under:-

‘’During construction stage:- Project management fee at the rate of 2% of asset company’s construction cost. After construction stage:-

(i) Project mangement fee at the rate of 2% on asset company’s monthly revenue.

(ii) Lease management fees at the rate of 1% per

ITA No.1255/Mds/2015. :- 4 -: month on asset company’s monthly revenue.

(iii) Asset mangement fees at the rate of 0.5% per annum of asset company’s project cost’’.

The ld. Assessing Officer though considered the submissions and the shareholding pattern and list of employees is of the opinion the assessee has charges less amount in comparison with the other companies engaged in the similar business and relied on the information of M/s. Ashok Leyland Properties for the assessment year 2005-06, were the company has charged 5% of project cost during construction period as project management fees as against 2% charged by assessee company to its sister companies on similar services. The ld. Assessing Officer found that assessee incurred an expenditure of �5.62 crores exclusively on its sister concerns and is of the opinion that the assessee cannot be allowed in incurring losses at the cost of sister concerns and there is no reasonability of the rate charged by the assessee company to its sister concern. The ld. Assessing Officer further based on the submissions and sister company working systems supported with the similar project consultancy of other group has estimated total operative cost plus a markup at 8% and considered the total services income as �6,07,15,147/- and passed the order with other disallowance u/s.143(3) of the Act, dated

ITA No.1255/Mds/2015. :- 5 -:

30.08.2007. Aggrieved by the order, the assessee filed an appeal before Commissioner of Income Tax (Appeals).

In the appellate proceedings, the ld. Commissioner of 4.

Income Tax (Appeals) considered the grounds and submissions made in the appellate proceedings and verified observations of the Assessing Officer in assessment proceedings and the pattern of working. The ld. Authorised Representative of the assessee submitted that order of the Assessing Officer is not sustainable and supported his arguments with followings decisions :-

(a) ‘’DCIT vs Nagarjuna Investment Trust Ltd (1998) 65 ITD 17 (Hyd) (b) Mysore Minerals Ltd vs. ITO (ITAT Bangalore) (c) R.M.P. Perianna Pillai & Co vs. CIT (1961) 42 ITR 370 (Mad) (d) Pandit Bros. vs. CIT (1954) 26 ITR 159 (Pun) (e) CIT vs. Salitho Ores Ltd. (2010) 344 ITR 161 (Bom) (f) Eastern Investments Ltd vs. CIT (1951) 20 ITR 1 (SC) (g) CIT vs. Walchand & Co etc. (1967( 65 ITR 271(SC) (h) CIT vs. Dhanrajgirji Raja Narasingirji (1973) 91 ITR 544 (SC) (i) CIT vs. A. Raman & Co (1968) 67 ITR 11 (SC) (j) Sri Ramalinga Choodambikai Mills Ltd vs. CIT (1955) 28 ITR 952 (Mad) (k) Dhakesari Cotton Mills Ltd. vs. CIT (1954) 26 ITR 775 (SC) (l) Gargi Din Jwala Prasad vs. CIT (1974) 96 ITR 97 (All)’’ The ld. Commissioner of Income Tax (Appeals) considered the submissions and confirmed the order of Assessing Officer and observed at para 4.2 of his order as under:-

‘’4.2 I have carefully considered the facts of the ITA No.1255/Mds/2015. :- 6 -: case and the submissions of the ld. Authorised Representative. I have also gone through the decisions relied on by the ld. Authorised Representative. As seen from the facts of the case the Assessing Officer has found that the fee charged from its group companies for project management services and asset management services, on the one hand, is below market rte and on the other hand the expenditure incurred by the appellant company for rendering such services is on the higher side. Therefore, the AO felt that the appellant should have incurred less expenditure or charged more fee from the group companies. Since the expenditure incurred by the appellant company is on the higher side, the AO has worked out mark up rate @ 8% on the expenditure incurred by the appellant company and arrived at total services income at ₹6,07,15,147. By arriving at the services income at ₹6,07,15,147, the AO has given credit to the expenditure of ₹5,62,17,729 debited to P & L ale and the net income of ₹44,97,418 was brought to tax as per the computation of income. The decision of the AO appears to be in order. Since the services rendered by the appellant is only to the group companies in the form of management and maintenance services, there is no reason why it incurs expenditure more than the income receivable from the group companies. Alternatively, the appellant company should have charged more fee to take care of its expenditure. It is true that the I activities of the appellant company are independent of its group companies and profit & loss cannot be foreseen in the business activities, but in the case of the appellant keeping in view the nature of services rendered by it, it should not incur losses of the magnitude shown by it. It could have managed its income and expenditure such a way that there will not be any net losses by the end of the year. Therefore, the method of mark up adopted

ITA No.1255/Mds/2015. :- 7 -: by the AO based on the expenditure incurred is in order and I agree with him. The ground is dismissed’’.

Aggrieved by the order of Commissioner of Income Tax (Appeals), the assessee assailed an appeal before Tribunal.

Before us, the ld. Authorised Representative of the assessee 5. reiterated the grounds and submissions made in the assessment proceedings. The grounds raised on the markup that the Assessing Officer has arbitrary marked up the rate 8% on the operative cost of the assessee company for the sister company which is not in order.

The assessee having a long standing relationship with the sister companies on financial aspects and charging of service fees is based on estimation of income being first year. The Assessing Officer erred in mark up the cost without any rationality and decisive factors and supported the arguments with the decisions of Tribunals and prayed the action of the Assessing Officer is bad in law and pleaded to allow the appeal of the assessee.

Contra, the ld. Departmental Representative relied on the 6. findings of the Assessing Officer and Commissioner of Income Tax (Appeals) and vehemently opposed the grounds of the appeal and prayed for dismissal of appeal.

ITA No.1255/Mds/2015. :- 8 -:

ITA No.1255/Mds/2015. :- 9 -: the cost by 8% without considering the submissions and valuable information on disputed issued of the assessee. The charging of fees is not definite measuring criteria as it differs from company policies.

The assessee company clarified on chargeability of fees during construction stage and post construction with supporting evidence and analogy of service fees and the Revenue for the first time has raised such objections and similar issue was dealt in the group companies of the assessee by the Tribunal in dated 04.12.2015 were the Tribunal observed at page 16 para 6 as under:-

‘’6. The next question arises regarding the estimation of the income of the assessee. The Assessing Officer proceeded to estimate the income of the assessee by taking into consideration the profit of the entities chosen by the Assessing Officer. Therefore instead of determining the ALP of the services rendered by the assessee to its AE, the Assessing Officer proceeded to estimate the income of the assessee on the basis of profits of some selected parties. In the case when the Assessing Officer has a reason to believe that the assessee has not charged the price from the related parties at Arms Length, then the Assessing Officer could have proceed to determine the ALP by selecting the independent transactions between the unrejected parties. But instead of determining ALP the Assessing Officer has estimated the income which is not permissible when the accounts of the assessee were not found in any deficiency or suffering from any defect. It is pertinent to note that the profit of an entity is effected by various factors including the fixed cost, the capacity at which the particular entity functions in comparison to its total capacity and further the stage of the business of a particular entity whether it is the initial stage or after stabilization of the business activity. In the case on hand, the Assessing Officer has accepted the service charges charged by the assessee to its AEs, in the subsequent assessment years. It is reproduced by the Assessing Officer in the impugned assessment order that the assessee has earned the profits in the ITA No.1255/Mds/2015. :- 10 -: subsequent assessment years. The revenue has not disputed the fact that the earlier assessment year as well as subsequent assessment year, the price charged by the assessee to its parties the services rendered by the assessee are accepted by the Assessing Officer. It is also not in dispute that the price charged by the assessee to its related parties are under the Same service agreement in the earlier Assessment Year, the assessment year under consideration and subsequent assessment year. Further, except the assessment year under consideration the Assessing Officer has not doubted the service charges received by the assessee under the same agreement and only in the assessment year under consideration, the Assessing Officer concluded that 'the price charged by. the assessee is undervalued. Though the doctrine of res judicate is not applicable in the matter of taxation however, when the facts and circumstances are identical and there is no change even in the price charged during the year under consideration in comparison to the earlier assessment year as well as subsequent assessment year the Assessing Officer is not permissible to take a different a view by picking and choosing a particular assessment year. Therefore, the rule of consistency demand, that the Assessing Officer cannot take a different view in a particular assessment year without point out any change in the facts and circumstances for that particular assessment year. Thus when the Assessing Officer has already accepted that this price charged by the assessee to the related parties under the same agreement in the earlier assessment years as well as in the subsequent years then picking up only one assessment year on the ground that the assessee has incurred a huge loss is not permissible to reject the books of accounts and estimate the income by the Assessing Officer. The revenue has also not disputed that the price charged by the assessee in the earlier assessment year for the year under consideration under and subsequent assessment year the same agreement, then the action of the Assessing Officer is not warranted to reject the books of accounts. In view of the above facts and circumstances of the case, we do not find any merit or substance in the appeal of the revenue, the same deserves dismissal’’.

Considering the above decision, we set aside the order of Commissioner of Income Tax (Appeals) and direct the Assessing

ITA No.1255/Mds/2015. :- 11 -:

Officer to delete the mark up and pass the orders.

Order pronounced on Thursday, the 28th day of April, 2016, at Chennai.