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Income Tax Appellate Tribunal, KOLKATA ‘C’ BENCH, KOLKATA
Before: Shri P.M. Jagtap & Shri S.S. Viswanethra Ravi
Date of concluding the hearing : December 07, 2015 Date of pronouncing the order : December 09, 2015
O R D E R Per Shri P.M. Jagtap:- This appeal filed by the assessee is directed against the order of ld. Deputy Commissioner of Income Tax, Circle-11, Kolkata (the A.O.) dated 24.08.2010 read with the directions given by the ld. Dispute Resolution Panel (D.R.P.) under section 144C of the Act making addition of Rs.2,08,00,000/- by way of transfer pricing adjustment.
The assessee in the present case is a Company, which is engaged in the business of trading in Printers and Printers accessories and providing Software Development Services. The return of income for the year under consideration was filed by it on 29.11.2006 declaring a loss of Rs.61,27,669/-. During the year, the assessee-Company had entered into international transactions with its Associated Enterprise (in short ‘A.E.’) M/s. Lexmark International Technology S.A. (in short ‘LITSA’) involving provision of Software Development Services and a sum of ./2010 Assessment year: 2006-2007 Page 2 of 5 Rs.2,42,61,193/- was charged for providing the said services. During the course of assessment proceedings, a reference under section 92CA(1) of the Act was made by the Assessing Officer to the Transfer Pricing Officer (in short ‘TPO’) for determining the Arm’s Length Price of the said international transactions of the assessee with its A.E. In the T.P. report submitted by the assessee, 12 entities were selected as comparables, out of them 7 entities were not accepted as comparables by the Transfer Pricing Officer (TPO) for the reasons given in his order. The TPO also conducted a search on his own and selected for 15 more comparables. Although the assessee raised objections in respect of the said 15 entities selected by the TPO as comparables, the TPO did not find the same to be acceptable and overruling the objections raised by the assessee, he selected finally 20 entities, 5 of the 12 selected by the assessee and 15 selected by him, as final comparables. Since the average profit margin, i.e. Operating Profit to Total Cost (OP/TC) of the said comparables was 20.68%, the TPO applied the same to work out the Arm’s Length Price of the Software Development Services provided by the assessee-Company to its A.E. at Rs.23.51 crores as against the price of Rs.21.43 crores charged by the assessee and the difference of Rs.2.08 crores was worked out by him as transfer pricing adjustment required to be made in the case of the assessee.
When the T.P. adjustment worked out by the TPO was sought to be added by the Assessing Officer to the total income of the assessee in the draft assessment order, various objections were raised by the assessee before the ld. D.R.P. A detailed submission was also filed by the assessee in writing before the ld. DRP in support of each and every objection raised by it. The ld. DRP did not find any merit in the objections raised by the assessee and directed the Assessing Officer to pass the final assessment order making the T.P. adjustment as worked out by the TPO for the following reasons given in its order dated 26.07.2010 passed under section 144C(5) of the Act:- “We have considered the submission of the A/R and had noticed that the assessee has received remuneration @ cost ./2010 Assessment year: 2006-2007 Page 3 of 5
plus 10.2% in respect of services rendered to its foreign A.E. whereas the transfer pricing officer after considering the facts of the case have determined the ALP at cost plus 20.6% for this assessment year.
Considering the above facts and T.P. order we do not find any material to interfere with the determination of the ALP which is very reasonable in respect of software services rendered”.
As per the direction of the Ld. D.R.P, order under section 143(3) read with section 144C(13) was passed by the Assessing Officer making addition of Rs.2,08,00,000/- to the total income of the assessee on account of transfer pricing adjustment. Aggrieved by the said order, the assessee has preferred this appeal before the Tribunal.
We have heard the arguments of both the sides and also perused the relevant material available on record. As submitted by the ld. Counsel for the assessee, as many as 15 objections were raised by the assessee before the ld. D.R.P. while challenging the T.P. adjustment of Rs.2.08 crores worked out by the TPO. As further pointed out by him, a detailed submission was also made by the assessee before the ld. DRP in support of each and every objection so raised and this position clearly evident from the relevant documentary evidence placed by the assessee on the record before us has not been disputed even by the ld. D.R. A perusal of the relevant portion of the ld. DRP’s order, which is extracted below, however, shows that the same have been brushed aside by the ld. DRP without giving proper and sufficient consideration. None of the objections raised by the assessee and the elaborate submissions made in support thereof, even find any mention in the order of the ld. DRP, much less any discussion or consideration thereof. In the case of Gap International Sourcing India (P) Limited –vs.- DCIT reported in 113 TTJ (Del.) 627, the Coordinate Bench of this Tribunal came across a similar situation, wherein voluminous submissions made by the assessee were found to be brushed aside by the ld. DRP without even a whisper in the order. The order passed by the ld. DRP was held to be laconic by the ./2010 Assessment year: 2006-2007 Page 4 of 5 Tribunal and the matter was remitted back to the ld. DRP to consider the same again and to pass a proper and speaking order. A similar situation arose even before the Hon’ble Delhi High Court in the case of Vodafone Essar Limited –vs.- DRP reported in 196 Taxman 423 (Del.), wherein the order passed by the ld. DRP was quashed by the Hon’ble Delhi High Court and the matter was remanded for fresh adjudication to the ld. DRP observing that when a quasi judicial authority deals with a lis, it is obligatory on its part to ascribe cogent and germane reasons as the same is the heart and soul of the matter. The Hon’ble Delhi High Court also observed that a well reasoned and well discussed order further facilitates appreciation when the same is called in question before the superior forum. Keeping in view the decision of the Hon’ble Delhi High Court in the case of Vodafone Essar Limited (supra) as well as that of the Coordinate Bench of this Tribunal in the case of Gap International Sourcing India (P) Limited (supra) and having regard to the fact that the ld. DRP has passed the order giving directions to the Assessing Officer under section 144C in the present case without giving proper consideration to the elaborate submissions made on behalf of the assessee, we set aside the said order as well as the impugned order passed by the Assessing Officer in pursuance thereof and remit the matter back to the ld. DRP with a direction to consider all the objections raised by the assessee as well as the submissions made in support thereof and pass a speaking order giving direction under section 144C after affording proper and sufficient opportunity of being heard to the assessee.