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Income Tax Appellate Tribunal, “K” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI ASHWANI TANEJA
Instant appeal of the assessee is directed against the assessment order passed under section 143(3) r/w section 144C of the Income Tax Act, 1961 (for short "the Act") at the direction of the Dispute Resolution Panel (DRP)–III, Mumbai, for the assessment year 2010– 11.
Grounds no.1, 2 and 3, being general in nature, do not require any specific adjudication.
2 Symantic Software Solution Pvt. Ltd.
In grounds no.4, 5 and 6, the assessee has challenged the decision of the Transfer Pricing Officer / DRP characterizing the assessee as “R&D Service Provider”.
Briefly stated the facts are, assessee filed its return of income for the impugned assessment year declaring total income of ` 30,42,992, under normal provisions and book profit of ` 3,14,51,748 under section 115JB of the Act. In the course of assessment proceedings, the Assessing Officer noticing that assessee has entered into international transaction made a reference to the Transfer Pricing Officer for determining the arm's length price. The Transfer Pricing Officer, after examining / verifying the material brought on record, observed, therefore, the assessee has claimed that it is engaged in providing contract software development services to its A.E. but actually assessee is engaged in providing contract research and development service. Accordingly, after rejecting the transfer pricing study and comparability analysis undertaken by the assessee, Transfer Pricing Officer conducted a fresh search and after selecting certain comparables determined the arm's length price at ` 25,08,33,448, as against price shown by the assessee at ` 21,24,51,438, which resulted in upward adjustment of ` 3,83,82,010. On the basis of order passed by the Transfer Pricing Officer, Assessing Officer framed a draft
3 Symantic Software Solution Pvt. Ltd. assessment order. Against the draft assessment order, assessee raised objections before the learned DRP. Though, DRP granted partial relief but it rejected assessee’s contention with regard to nature of service provided as Contract Software Development Service. In terms with the order passed by the DRP, the impugned assessment order has been passed.
Learned Authorized Representative, at the outset submitted, identical issue arose in the immediately preceding assessment year viz. assessment year 2009–10 and the Tribunal after considering the submissions of the parties, has restored the matter back to the file of the Assessing Officer / Transfer Pricing Officer to re–examine the entire issue on the basis of softex form filed with the STPI authorities and related orders of STPI authorities. He, therefore, submitted, consistent with the view taken by the Tribunal in assessment year 2009–10, the issue may be restored back to the file of the Transfer Pricing Officer / Assessing Officer with similar direction.
Learned Departmental Representative submitted, to find out exact nature of service provided by the assessee reading of the agreement between the parties will be crucial. He, therefore, submitted, in case the matter is restored back to the file of the 4 Symantic Software Solution Pvt. Ltd.
Assessing Officer / Transfer Pricing Officer all relevant facts have to be examined including the agreement between the parties.
We have considered the submissions of the parties and perused the material available on record. As could be seen, the major dispute between the assessee and the department is in relation to the nature of service provided by the assessee to its A.E. While the assessee claims that it provides contract software development service, the Department is of the view that the assessee provides contract research and development service. It is the contention of the assessee that merely relying upon certain nomenclature in the financial statements the Department has taken such a view, whereas, all other evidences on record prove that assessee is providing contract software development services. It is noticed in assessment year 2009–10, while dealing with identical issue, the Tribunal held as under:–
“10. We have given a thoughtful consideration to the rival submissions and have carefully perused the orders of the authorities below. We have also considered the relevant documentary evidences brought on record. In our considered opinion, the entire dispute revolves around the nature of business of the assessee. The assessee claims itself to be a Software Development Service Provider whereas the TPO has treated the assessee as engaged in providing contract Research & Development Services. This dispute gets strength from the nomenclature used by the assessee in Form No. 3CEB and also in its Transfer Pricing Study Report. However, the documentary evidences filed in the form of copies of Softex Forms and the order of the STPI authorities paint an altogether different picture. In our considered opinion, these documents have not been properly appreciated by the 5 Symantic Software Solution Pvt. Ltd.
Revenue authorities. Had these documents been examined qua the nature of business of the assessee, the resultant product would have been different. Therefore, in the interest of justice and fair play, we restore this issue to the file of the TPO. The TPO is directed to re-examine the entire issue by denovo assessment. The TPO is directed to decide the issue on the basis of Softex Form filed with the STPI authorities and related orders of the STPI authorities. The assessee is directed to furnish necessary details and the TPO is directed to examine the same after giving reasonable opportunity of being heard to the assessee. Needless to mention, the TPO shall also decide all other related issues with the TP adjustments relating to working capital adjustments and differences in the risks. Ground No. 4,5 & 6 are treated as allowed for statistical purpose.”
As could be seen, the issue relating to the characterization / nature of service provided by the assessee in assessment year 2009– 10, has been restored back to the file of the Assessing Officer / Transfer Pricing Officer for deciding afresh. Consistent with the view taken by the co–ordinate bench as aforesaid, we are inclined to restore the matter back to the file of the Assessing Officer / Transfer Pricing Officer for the impugned assessment year with similar direction. The Transfer Pricing Officer must decide the issue denovo after due opportunity of being heard to the assessee and considering all the objections / submissions of the assessee in the light of material brought on record. While doing so, the Transfer Pricing Officer should also decide all other issues relating to transfer pricing adjustment such as selection of comparables, working capital / risk adjustment, etc. These grounds are allowed for statistical purposes.
6 Symantic Software Solution Pvt. Ltd.
Grounds no.7, 8 and 9 being consequential to grounds no.4, 5 and 6, in view of our decision in grounds no.4, 5 and 6, no separate adjudication is required at this stage.
Ground no.10, is on initiation of penalty proceedings u/s 271(1)(c) and ground no.11 is on levy of interest under section 234B. These grounds being consequential in nature, cannot be considered at this stage of the proceedings. Hence, they are dismissed.
In the result, assessee’s appeal is partly allowed for statistical purposes. Order pronounced in the open Court on 31.03.2016