Income Tax Appellate Tribunal - Hyderabad
Satyam Venture Engineering Services ... vs Assessee on 1 July, 2015
ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad 'A' Bench, Hyderabad
Before Shri P.M. Jagtap, Accountant Member
& Smt.Asha Vijayaraghavan, Judicial Member
ITA No.492/Hyd/2008 & ITA No.196/Hyd/2011
(Assessment year: 2003-04)
M/s. Satyam Venture Engg. Dy. Commissioner of
Services Private Limited Vs. Income Tax, Circle 3(1)
Hyderabad Hyderabad
PAN: AAFCS 3287 D
(Appellant) (Respondent)
ITA No.783/Hyd/2008
(Assessment year: 2003-04)
Asstt. Commissioner of Income M/s. Satyam Venture
Tax, Circle 3(1) Vs. Engg. Services Private
Hyderabad Limited, Hyderabad
PAN: AAFCS 3287 D
(Appellant) (Respondent)
ITA No.924/Hyd/2008,1136/Hyd/2013 & 1137/Hyd/2013
(Assessment years: 2003-04 & 2004-05)
M/s. Satyam Venture Engg. Dy. Commissioner of
Services Private Limited Vs. Income Tax -Circle 3(1)
Hyderabad Hyderabad
PAN: AAFCS 3287 D
(Appellant) (Respondent)
ITA No.1904/Hyd/2011
(A.Y 2002-03)
M/s. Satyam Venture Engg. Dy. Commissioner of
Services Private Limited Vs. Income Tax, Central
Hyderabad Circle -9, Hyderabad
PAN: AAFCS 3287 D
(Appellant) (Respondent)
For Assessee : Shri C.S. Subramanyam &
Shri V. Siva Kumar
For Revenue : Smt. G. Aparna Rao, DR
Date of Hearing : 10/04/2015
Date of Pronouncement : 01/07/2015
Page 1 of 57
ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad
ORDER
Per Smt. Asha Vijayaraghavan, J.M.
These are the appeals preferred by the assessee and the Revenue against the orders of the lower authorities in Hyderabad for various years being 2002-03, 2003-04 and 2004-05 in the case of Satyam Venture Engineering Services (P) Ltd.
ITA No.492/Hyd/2008 - A.Y 2003-04This appeal filed by the assessee is against the order of the CIT-III Hyderabad, dated 5.11.2007 u/s 263 of the Income Tax Act, 1961.
2. Briefly stated, the ld CIT revised the assessment made by the AO vide his order u/s 263 dated 5.11.2007. Assessee debited Rs.4,25,88,428 towards sale commission. Out of this Rs.2,59,75,156 is towards commission payable to Venture Global on the sales made to M/s Satyam Computer Services Ltd and its affiliates. The TPO and the AO allowed the entire commission, while passing orders u/s 92CA(3) and 143(3) respectively as claimed by the assessee. The said commission payable/paid to M/s. Global Engineering of USA (Venture Global) on sales made to M/s Satyam Computer Services Ltd (SCSL) and M/s. Satyam Manufacturing Technologies Inc. etc., was issue under consideration in the revision proceedings. The CIT observed that it was evident that "Venture Global" being one of the parent companies in the business of the assessee, was paid 10% commission on sales made to another parent company viz., SCSL which was not warranted because both the parent companies are Page 2 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad equally responsible for the development of the assessee. The CIT was of the view that under the circumstances, payment of sales commission at 10% on sales made to SCSL and its affiliates was not reasonable and therefore not allowable.
3. The assessment order was considered erroneous by the CIT in so far as it relates to the above issue and as such prejudicial to the interest of Revenue. He rejected the contention of the assessee that the commission was payable as per the agreement entered into with "Venture Global" stating that such an agreement is not the final document to decide whether the expenditure is genuine. He also stated that the nature of services rendered by "Venture Global" do not fall under the head chargeable services.
4. The CIT also rejected the contention of the assessee that "Venture Global" is a separate legal entity and requires to be compensated for service rendered irrespective of whether the service recipient is a AE or Non-AE. He stated that in a case where service is rendered to a new customer, lot of service has to be rendered by way of advertisement, demonstration, providing samples etc., which requires lot of manpower, travelling and expenditure etc., which is not the case when services rendered to a partner of the joint venture who is well aware of the product.
5. The CIT justified the initiation of proceedings u/s 263 stating that prior to amendment of section 92CA(4) w.e.f. 1.6.2007, the TPO's order was not binding on the AO and thus the AO was empowered to alter the TPO's order. The CIT held Page 3 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad that since the AO did not exercise his power while passing order u/s 143(3) of the Act, the said order was erroneous and prejudicial to the interest of Revenue.
6. Having held that the order passed by the AO u/s 143(3) was correctly subjected to revision u/s 263 of the Act, the CIT held in para 14 of his order that as regard the method under which commission on sales made to SCSL and its affiliates is to be disallowed, the matter was restored to the AO for verification of record and applying the most appropriate method for determining ALP following TPO's order for subsequent A.Y vis., 2004-05 where the TPO disallowed commission paid on sales made to SCSL and its affiliates. He also directed the AO to invoke the provisions of section 92C(3) and pass the order accordingly.
7. On appeal against the order u/s 263, the ld Counsel for the assessee submitted as follows:
• As regards the direction of the CIT, for following TPO's order for subsequent A.Y viz., A.Y 2004-05 it was submitted that the TPO disallowed commission paid on sales made to SCSL and its affiliates for that year on grounds of commercial expediency and this could not have been one of the considerations to be applied while applying TP provisions and making a TP adjustment. It was further submitted that this proposition is well supported by various judicial decisions. In this connection, reliance was placed on the decision of the Hyderabad Bench of the ITAT in the case of Social Media India Ltd (2013) (40 taxmann.com 37) wherein the ITAT held that the TPO could Page 4 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad not have disallowed disallowed any expenditure on the ground that it was not necessary or prudent for the assessee to have incurred the same nor on the reason that the assessee has not justified the benefit principle. ITAT took support from the decision of the Delhi High Court in the case of EKL Appliances (2012) (24 taxmann.com 199) (Delhi High Court). It was argued that the view taken by the CIT that the order of the AO is erroneous and prejudicial to the interest of Revenue for the reason that the rationale of the order of TPO for A.Y 2004-05 was not followed, cannot be sustained in the light of the legal position submitted above.
• It was further submitted that the TPO in his order u/s 92CA(3) of the Act for A.Y 2003-04 recorded that the assessee produced evidence by way of debit notes and bank statement proving the remittance of sales commission at 10% of value of engineering services. The TPO also recorded that after comparing the same with limits fixed under other statutory regulations viz., FERA and customs regulations @ 12.5% and recorded that the same is accepted under CUP method. In the light of this position, the acceptance of the TPO's order by the AO cannot be held to be prejudicial to revenue. In this connection reliance was placed on the decision of ITAT A Bench Hyderabad in ITA Nos.549/H/2014 and 595/H/2015 dated 13.10.2014 in the case of M/s. OWENS Corning Industries (India) Pvt. Ltd Hyderabad wherein it has been held that once RBI approval of royalty rate was obtained, the payment was to be held as at Arm's Length.Page 5 of 57
ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad • Assessee, therefore, submitted that even if the CIT was correct in holding that the AO had power u/s 92CA(4) of the Act to interfere with the order of the TPO, the acquiescence of the AO in the order of the TPO (or his failure to exercise the power available to him u/s 92CA(4) did not result in error or prejudice to the interest of revenue because the reasoning of the TPO in accepting the sales commission as reasonable by adopting the CUP method has found acceptance by the appellate authorities including the jurisdictional bench of the ITAT. Again the method of commercial expediency adopted by the TPO for A.Y 2004-05 which was recommended by the CIT for consideration by the AO has been struck down as totally unacceptable by the appellate authorities including the jurisdictional bench of ITAT.
8. The ld DR relied on the order of the AO.
9. We have heard both the parties. We are of the opinion that the CIT erred in holding that in the absence of section 92CA(4) during the relevant period, it is not binding on the AO to follow the order of TPO. The order of CIT is contrary to the CBDT instruction No.3 of 2003 wherein it is clarified that the AO has to compute the total income of the assessee having regard to the arms length price so determined by TPO.
10. We are also of the view that the CIT ought not to have assumed jurisdiction u/s 263 of the Act in as much as it is merely a change of opinion. We rely on the decision of Malabar Industrial Co Ltd. Vs. CIT 243 ITR 0083 Page 6 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad Even assuming that the enquiries made by the Assessing Officer are inadequate, the jurisdiction under Sec. 263 of Income Tax Act, 1961 cannot be assumed as it was only in the cases of lack of enquiries that the jurisdiction under Sec. 263 of Income Tax Act, 1961 can be assumed. Reliance in this regard is placed on the following decisions:
1. CIT v. Anil Kumar Sharma - 335 ITR 83 (Delhi);
2. CIT v. Sunbeam Auto Ltd. 332 ITR 167 (Delhi);
3. CIT v. Gabriel India Ltd. 203 ITR 108 (Bom) In the present case before us the TPO and the Assessing Officer had applied their mind and allowed the entire commission while passing orders under sec. 92CA(3) and 143(3) respectively as claimed by the assessee. Hence we annul the order of CIT passed under sec.263.
11. In the result, appeal of the assessee is allowed.
ITA No.196/Hyd/2008: A.Y - 2003-041. This is an appeal filed by the assessee against the order passed u/s 143(3) r.w.s. 263 of the Act. Since in ITA No.492/Hyd/2008 for the A.Y 2003-04, we have annuled the order of the CIT passed u/s 263, the appeal of the assessee against the order passed by the AO u/s 143(3) r.w.s. 263 of the Act is to be allowed in favour of the assessee.
2. In the result assessee's appeal is allowed.
Page 7 of 57ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad ITA No.783/Hyd/2008 - (A.Y 2003-04) Revenue's Appeal & ITA No.924/Hyd/2008: (A.Y. 2003-04) Assessee's appeal
1. This appeal is preferred by the Revenue against the order of the CIT (A)-III Hyderabad, dated 20.02.2008 passed for A.Y 2003- 04 and the main issue involved in the appeal is regarding the disallowance of Rs.92,83,125 made by the AO on the basis of arm's length price of I.T. Engineering services worked out by the TPO i.e. Add. CIT, Transfer Pricing, Hyderabad vide his order u/s 92CA dated 16.03.2006 passed in the case of the assessee.
2. Briefly stated, the assessee had provided CAE services to its AEs @ $39 per hour, it had charged higher rates to unrelated enterprise i.e. M/s General Motors at about $56.13 per hour. The TPO after due consideration, adopted the adjusted rate regarding non AE after providing 10% reduction for sales commission payable on the sales made to non-AEs @ $50.52 per hour. The assessee explained to the TPO that the General Motors (GM) was a new customer during the relevant year and the volume of services provided by the assessee to GM was quite less, on account of which higher rates were charged. However, the TPO observed that the assessee itself had asked for adoption of CUP method and there was no adjustment possible while applying the comparison under CUP method. In view of this, TPO worked out the difference in rate at $ 11.52 per hour and thus computed the arms length price of services made to AEs at Rs.32,08,47,363 against the price shown by the assessee at Rs.31,15,64,238, thus working out differential amount of Rs.92,83,125 to be adopted by the AO for adjustment.
Page 8 of 57ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad
3. AO added the above amount to the income returned by the assessee. However, while working out deduction u/s 10A, the AO has also included the above additions in the business profits on account of which the income has been finally assessed at Rs.43,17,240.
4. Aggrieved, assessee preferred appeal before the CIT (A).
5. In Ground No.2, assessee disputed the AO's finding that on site services billed to Venture USA and Venture Germany were not at arm's length. Ground Nos. 3 to 5 and ground No.7 are again extension and elaboration of the main ground taken by the assessee against the adjustment made by the TPO/AO by comparison of prices of services rendered to AEs with the prices charged to General Motors (non-AE).
6. Before the CIT (A), the ld AR of the assessee submitted as follows:
"6.1 main emphasis of the appellant in these grounds is that General Motors was a new customer during the F.Y. 2002-03 and the initial services were provided on a higher rate on trial basis.
(i) The rates between Venture USA/Germany and General Motors should not be compared without making suitable adjustments towards the volume of business, as the working hours provided to A.E is 40 times more than the hours billed to Non AE (M/s.
General Motors). Therefore, suitable adjustment should be made in the hourly rates to give effect to the volume of business generated.
Page 9 of 57ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad
(ii) The provision similar to that of Transfer Pricing Regulations exist in the Customs regulations of India also to determine the Arm/s Length price of the goods imported into India. The courts on similar disputes on comparability of prices under customs law have held that the prices compared should take into account the volume differences between two transactions.
(iii) Because there exist differences W.r.t. volume and the no. of hours worked by the Appellant for it's AEs and Non AEs:. the TPO ought to have followed the conditions provided in Rule 10B (2) and (3) of the Rules before resorting to comparison of the prices, and considered volume adjustment before determining the arm's length nature of the transaction of rendering IT Engineering services to the Appellant's AE's, namely Venture USA and Venture Germany.
7. The ld CIT (A) Held as follows:
"6.2 On careful consideration of the submissions of the appellant, I find that there is some force in the argument of appellant that the AO should have made suitable adjustments before making the comparison of rates charged by the appellant for similar services to its AEs and non AEs, looking to the difference in volume of transactions and the fact of General Motors being a new client for the appellant in F.Y. 2002-03. However, I am not in agreement with the contention of the appellant that the rates charged to M/s. General Motors cannot be considered as comparable. On a perusal of the documents and details made available, I note that even though there was a difference in the volume of transactions between the AEs and non-AEs, the nature of services (CAE) provided by the appellant remained similar and, therefore, the rates charged in respect of General Motors were correctly considered as internal CUP by the TPO for the purpose of comparison in this case. In view of this, looking to the functional similarity, I uphold the adoption of services given to M/s. General Motors as Page 10 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad comparable with the services provided to the AEs by the TPO/AO, on the facts of the case.
6.3 The next important issue requiring consideration is the adjustment/deduction in rates required to be given on account of high difference in volume of transactions, as contended by the Ld ARs of the appellant during the appeal proceedings. I feel that, in view of the provisions contained in rule 108(1 )(a), rule 108(2) as well as rule 108(3), reasonable adjustments should have been made by the TPO/AO to eliminate the effects of such difference in the volume of transactions. There is no dispute about the fact that M/s. General Motors was a new customer for the appellant in F.Y. 2002-03 and the transactions were also on a small scale i.e., only 424 hours of service. However, I feel that even in such circumstances, no assessee will charge a rate which is at great variance with the normal market rate of the services provided, considering the fact that it was a new client with whom the assessee will try to get more business in future. Hence, despite low volume of transactions, the rates charged by the assessee would not be too high in case of the new client. However, keeping in view the substantial difference in the volume of transactions with M/s. General Motors vis-a-vis the AEs of the appellant, I feel that a deduction of 5% from the adjusted rate adopted by the TPO ($50.52) may be allowed while determining the ALP, considering the facts and circumstances of the case. Thus, the appropriate rate to be adopted for comparison under CUP method for computation of ALP of the services rendered to AEs would be ($50.52 (-) $ 2.52), or $ 48 per hour, against the rate charged by the appellant at $ 39 per hour from the AEs.
6.4. In view of the above, the adjustment on account of difference in rates under the TP provisions has to be worked out @ $9 per hour. The total difference worked out on this basis, adopting the conversion rate mentioned by the TPO at Rs 48.23, would come to (16,708 hours x 9 x 48.23), or Rs. 72,52,442/-, against the difference adopted by the Assessing Officer at Rs. 92,83,125/- in the assessment order.Page 11 of 57
ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad This difference of Rs. 72,52,440/- will be added to the income disclosed by the appellant in place of the addition made by the Assessing Officer at Rs. 92,83,125/-. 'The grounds taken by the appellant in this regard are, accordingly, partly allowed".
8. Aggrieved, both the assessee and the Department have come up on appeal.
9. The grounds of appeal in ITA No.924/Hyd/2008: (A.Y. 2003-04) Assessee's appeal are as follows:
"1. The order of the ld CIT (A)-III Hyderabad dated 20.02.2008 is contrary to the law and facts of the case.
2. The ld CIT (A) while providing downward adjustment for volume of sales ought to have computed the adjustment on a scientific basis instead of arbitrarily allowing 5% adjustment.
3. The ld CIT (A) has compared the prices charged to non-AE customer M/s General Motors for 424 hours as against 16,208 hours provided to Associated Enterprises (Venture Group) and adjustment of 5% does not commensurate with the difference in volume of hours worked.
4. The ld CIT (A) ought to have followed the conditions provided in Rule 10B(2) and (3) of Income Tax Act before resorting comparison of the prices.
5. The ld CIT (A) has erred in holding that the rates charged to the customer M/s General Motors and Venture Group are comparable.
6. The ld CIT (A) ought to have considered the fact that M/s General Motors was a new customer during the financial year 2002-03 and that the initial services were provided on a trial basis at a higher rate whereas the work flow from Venture Group is in a continuous basis over a number of years".Page 12 of 57
ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad
10. Ground 1 is general in nature. With respect to ground numbers 2, 3 4 and 6 the ld Counsel for the assessee submitted that the CIT (A) failed to grant necessary adjustment for the price difference on a scientific basis and proceeded on an adhoc basis by granting a deduction @ 5% which is not in accordance with Rule 10B. The ld Counsel further submitted that the assessee worked for nearly 40 times more with AE when compared to non- AE. It was further submitted in addition General Motors is a new customer taken on trial basis and hence the company has quoted higher price as it was not sure whether or not the customer would stay with the company. The ld Counsel for the assessee prays for a downward adjustment of atleast 25% to the price charged to Non-AE. Alternatively the assessee prayed that the General Motors cannot be considered as valid comparable in view of differences in volume, new customer relationship and functional difference.
11. On the other hand, the Department has come on appeal in ITA No.783/Hyd/2008 before us and filed the following grounds: "1. The CIT (A)-III Hyderabad erred in law in allowing the assessee's appeal.
2. The CIT (A) III Hyderabad ought to have appreciated the action of the AO in working of service charges @ $50.52 per hour instead of US $ 48 per hour adopted by the CIT (A) Hyderabad.
3. The CIT (A) ought to have appreciated the action of the AO that he has adopted service charges @ USD 50.52 per hour as determined by the TPO.
4. The CIT (A) ought to have appreciated the action of the TPO that he has determined the service charges as per CUP method as asked by the assessee and in strict principle, there is no adjustment is possible while applying the perfect comparison under CUP method".
Page 13 of 57ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad
12. The ld DR argued that the CIT (A) ought to have appreciated the action of the AO wherein service charges @ US$ 50.52 per hour was adopted as determined by the TPO. He also submitted that the TPO, as per CUP method as requested by the assessee, no adjustment is possible while applying the perfect comparison as adopted.
13. The ld Counsel for the assessee countered the statement of the DR as being that when CUP method is adopted as an appropriate method, no adjustment can be made to the price taken as comparable. The ld Counsel for the assessee stated that this proposition is in violation to Rule 10B(3)(ii) which mandates that the reasonable accurate adjustment need to be made to eliminate effects of difference. Otherwise, the non-AE transactions, as such, cannot be made as comparable to AE transactions.
14. The ld Counsel relied on the decision of the Mumbai Bench of the Tribunal in the case of Intervet India (P) Ltd vs. ACIT (39 SOT 93 (Mum.) wherein it was stated that the CUP method should be applied to bring the prices to a comparable level.
15. We heard both the parties. We find that the main emphasis of the assessee is that the General Motors was a new customer during financial year 2002-03 and the initial services were provided on higher rate, on a trial basis. Further the rates between Venture USA Germany and General Motors should not be compared without making suitable adjustment towards the Page 14 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad volume of business as the working hours provided to AE is 40 times more than the hours billed to M/s General Motors. However, we are in confirmity with the order of the CIT (A) wherein he has applied his mind and discussed elaborately at Para Nos. 6.3 and 6.4. The CIT (A) has justified the deduction of 5% from the adjusted rate adopted by the TPO while determining the ALP by stating that no assessee will charge a rate which is at great variance with the normal market rate of the services provided considering the fact that it was a new client who whom the assessee will try to get more business in future. Hence the CIT observed that despite less transactions, the rates charged by the assessee in case of new client. Therefore, the CIT had rightly directed for an adjustment of account difference in the rate under the TP provisions worked @ US$ 9 per hour.
16. The grievance of the assessee that suitable adjustment have to be made to bring the prices to a comparable level has been satisfied by the CIT (A) by giving a reduction of 5%. The CIT (A) was of the opinion that the reduction of 5% is sufficient with respect to the facts of the case, we also confirm.
17. The ground of the Department is that in Ground No.4, once CUP method is adopted, no adjustment is possible is incorrect and the CIT (A) has given sufficient adjustment of deduction at 5% from the adjusted rates adopted by the TPO ($50.52 (-) @ 2.52) while determining the ALP, considered the facts and circumstances of the case. We confirm the order of the CIT (A).
Page 15 of 57ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad
18. In the result both the assessee and Departmental appeals in ITA No.924/Hyd/2008 and 783/Hyd/2008 are dismissed.
ITA No.1136/Hyd/2013 - A.Y 2003-04 (Assessee's Appeal)1. The original assessment U/s.143(3) was finalized by an order dated 31.03.2006 by the Assessing Officer basing on the order of the Transfer Pricing Officer (TPO). The assessee had entered into various international transactions (such as export of software engineering services, sales commission, man power resource support, reimbursement of CEO's remuneration) with AE which were examined in detail by TPO culminating into an addition to the export sales based on arm's length computation. The TPO based on the Comparable Uncontrollable Price (CUP) method for determination of the arm's length price adopted by the company, proposed an adjustment of Rs.93 lakhs to the export income recognized by the company. The assessment was completed by the AO making the said addition to the total income declared by the company.
2. Aggrieved by the assessment the assessee filed an appeal before the CIT(A) where the rate per hour fixed by the TPO (for determining ALP under CUP method) was reduced giving partial relief to the company. However, deduction U/s 10A incorrectly allowed on the transfer pricing adjustment in the original assessment was appropriately reduced by the CIT. Consequent to the CIT(A) order the net enhancement to the income was determined at Rs.57 lakhs as against Rs.93 lakhs referred above. Aggrieved by the said order of CIT(A) the Page 16 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad revenue and the company are in cross appeals before the ITAT which are pending disposal.
3. Subsequently the assessment for AY 2003-04 was revised by the CIT U/s.263 of the IT Act. The CIT found that for the AY 2004-05, the AO disallowed portion of the sales commission paid by the assessee to its AE. Based on the information, the CIT directed that the international transaction with respect to sales commission paid is to be disallowed, to the extent attributable to service income derived from parent company Sat yam Computer Services Limited (SCSL). Accordingly the AO by an order dated 31.12.2008 U/s.143(3) r.w.s 263 disallowed an amount of Rs.2.59 Crores out of the total sales commission paid of Rs.4.26 Crores. The said disallowance represents the commission paid to Venture Global on the sales made to Satyam Computer Services Ltd. and its associates. The entire sales commission paid on the sales received from SCSL was disallowed. Against the revised assessment the assessee filed appeal before CIT(A).
4. The CIT (A) dismissed the appeal. Assessee filed appeal against the CIT's order u/s 263 as well as the order of the CIT (A) on the revised assessment. The 263 order was annulled by our order in ITA No.492 and the appeal against giving effect to order passed by the AO u/s 143(3) r.w.s. 263 in ITA No.196/Hyd was also allowed in favour of the assessee.
Page 17 of 57ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad
5. The AO issued a notice dated 29.03.2010 U/s.148 reopening the assessment and requesting the company to file a return of income. The said notice was received by the company on 31.03.2010. Subsequent to the notice the company requested the AO to consider the return of income filed originally on 28.11.2003 as return in response to the notice U/s.148. The AO provided the reasons for re-opening by a letter dt.16.09.2010. The company objected to the said re-opening, based on the reasons so furnished vide its letter dt.27.10.2010. The AO disposed the objections to notice U/s.148 by a letter dt. 1.11.2011.
6. The AO proceeded to re-assess the income U/s.143(3) r.w.s 147 accordingly. The AO referred the transactions to the TPO for arm's length price evaluation and also to special audit U/s.142(2A).
Nature of addition Amount ALP method ALP
(Rs.in by company By TPO
TPO order
(adjustment on account of
Commission paid to AE
Net of disallowance in
original 143(3) and 263 1.66 CUP
(Rs.4.26 - Rs.2.60) CUP
Export sales (Rs.8.62- 7.90 CUP TNMM
AO Order
Sec.10A adjustment to
export sales under
0.89
explanation 2(iv)
under section 1OA
Total 10.45
Page 18 of 57
ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad
7. Based on the special auditor's report and Transfer Pricing Officer's order, the AO made a draft assessment order by proposing the above additions which are in dispute in this appeal.
8. Objections to Dispute Resolution Panel were raised by the assessee.
9. Aggrieved by the proposed draft assessment, the company filed before the DRP by raising in summary the following grounds:
1. Sec.l47 - The reopening of assessment U/s.147 after completing the assessment U/s.l43(3) and U/s.l43(3) r.w.s 263 does not satisfy the conditions laid down U/s. 147.
2. The comparables adopted for determining the ALP of export sales is incorrect due to the functional differences between the Company and comparables.
3. Method adopted for determining the ALP for export sales by the TPO (TNMM) is incorrect.
4. ALP by the TPO for the commission payment without determining and identifying the comparables under CUP method is incorrect.
5. Adjustment to export sales to compute deduction U/s 10A is incorrect in the light of the settled position of the law.
10. The DRP had not appreciated the reasoning put forward Page 19 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad by the company in support of the above said grounds and confirmed the draft assessment order of the AO.
11. The draft assessment order upon confirmation by the DRP culminated into final assessment order with the adjustments to the returned income as explained above.
12. Ground Nos.2 & 3 before us is whether reopening u/s 147 is valid or not. The validity or otherwise of the reopening of the assessment is being objected broadly on two grounds:
i) The reason for reopening is vague and based on absence of any nexus to any of the operations of the assessee.
ii) The assessment is finalized without resulting in any addition on account of reason for reopening.
13. The AO reopened the assessment under section 147 beyond the period of four years. Sec.147 permits the reopening /reassessment of assessment finalized under section 143(3) upon satisfaction of the AO that the assessee had failed to disclose fully and truly all material facts necessary for assessment for that assessment year. The reasons given by the AO to reopen assessment in the case of the company would provide a light on his reasoning to conclude failure to disclose fully and truly all material facts necessary for assessment.
14. On 7.1.2009, Chairman, Satyam Computer Services Ltd had written a letter to the Board of Directors of Satyam Page 20 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad Computers wherein he elaborately explained various transactions of Satyam Computer Services Ltd which resulted in the financial statements being incorrect. In his statement he categorically stated that these kind of irregularities were limited to Satyam Computers alone and one of the operations of the subsidiaries have been affected. In the light of the said letter written by Mr. Ramalingaraju and his subsequent statement before the department, AO proposed to reopen the assessment u/s 147. Para 4 of the reasons cited by the AO explains various facts derived from the statement of Mr. Ramalingaraju which according to him had a bearing of the assessment of the company.
15. The submissions of the ld Counsel for assessee is reproduced hereunder:
"The following are the three major reasons coming out of the reasons recorded by the AO to reopen the assessment u/s 147. The facts relating to these reasons from the assessment record present the validity or otherwise of the reasons.
Reason - I The assessee company is one of the group companies of Satyam Computers. The money originated from the family members had been transferred in circuitous and complex manner through front companies into investments and in creation of assets in the shape of large tracts of lands.
The Ld Counsel's arguments are as follows:
• The original assessment was completed U/s.143(3) by incorporating adjustments to the international Page 21 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad transactions as per the TPO's order. The assessee company had neither acquired nor sold any land since its inception. All the transactions with the parent company SCSL are examined in the process of original assessment. The Transfer Pricing Officer and the Assessing Officer obtained the necessary information during the course of original 143 (3) proceedings and after due verification the said assessments were completed. Paragraph 2 of TPO' s order (Page 26 of paper book) is extracted below:
• "A notice U/s.92CA of the Income Tax Act along with questionnaire was issued to the assessee on 28. I O. 2005 requiring the assessee to furnish certain information and submit relevant documents. Authorized Representatives of the company appeared from time to time and furnish the required details and the case discussed with them. "
• Paragraph 1 of the Assessment Order dt.31.03.2006 ....................... " in response to the posting notices issued, S Venkateswarlu and Ratna Prasoona authorized representatives of the company appeared from time to time and furnished details called for. After verification of the information furnished and after discussing the case with the ARs of the assessee company the assessment is completed as ... under "
• The above extracts from the relevant orders confirm furnishing of information necessary for the completion of the assessment before the TPO and the Assessing Officer with respect to transactions with all the group companies.
Reason - II raised by A.O. for reopening Page 22 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad The assessment of the assessee company was completed U/s.143(3) and the Assessing Officer is not aware of the likely variations in income and assets and liabilities of SCSL at the time of assessment. The transactions revealed by Mr. Ramalingaraju apparently will have bearing on the affairs of the group companies and their consequence income and assets position in view of the complex and circuitous nature of transactions.
Ld. Counsel's argument with respect to second reason for reopening:-
• The allegations that the assessment needs to be reopened U/s.147 based on the statement of Mr. Ramalingaraju, Chairman, Sat yam Computers, has no nexus with the financial transactions of the company. The statement by Mr.Ramalingaraju consisted details of certain transactions relating to Sat yam Computers. The said statement of Mr.Ramalingaraju excludes the affairs of any subsidiary compames from the said irregularities pointed out by him. Please refer to Para 2 of Letter by Mr.Ramalinga Raju (page 22 of paper book) stating that, " The gap in the Balance Sheet has arisen purely on account of inflated profits over a period of last several years (limited only to Satyam standalone, books of subsidiaries reflecting true performance).
• The AO referred to circuitous and complex transactions by the front companies which resulted in creation of large tracts of land to the said companies. It may be appropriate to disclose at this point that the assessee company does not own land as on the date of financial statement for the current year and subsequent years as well, as evidenced by Page 23 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad the financial statements. It has not purchased or sold land till now.
• It is well settled law that as on the date of reopening, the AO is not required to prove with evidence the escapement of income. It is adequate if he demonstrates a relevant and live possible connection towards escapement of income.
• None of the material narrated by the AO in the reasons given by him related to the assessee company or had any bearing on the assessment. The assessee company is obliged to disclose truly and fully all the facts to enable completion of its assessments. The assessee cannot be obliged to disclose any information with respect to group companies which has no relevance to its assessments.
• The assessee company is not an investment company nor has acquired any land at any point of its operations. Hence, the reason assumed by the AO does not arise out of the results of its operations or facts pertaining to its operations. It is very relevant to note that the company is joint venture between Venture Global LLC (a company incorporated in USA) and Sat yam Computer Services Ltd with 50% shareholding each. In accordance with the understanding with the joint venture partner, the CEO is to be appointed by Venture Global Engineering LLC. The composition of the board consisted of three directors each nominated by both the partners. The organizational structure and the nature of operations do not in any way have remotest possible connection with any of the investment or front companies alleged by the AO. Hence, a Page 24 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad reason though not necessarily conclusive, should have a minimum relevance to the nature of the business, transactions of the assessee company and, finally the income of the Company. The reasons cited by the AO are farfetched and fail to bring out at least a feeble or thin link with the operations of the company.
Reason III for reopening as noted by Assessing Officer • The books of front companies and financial statements do not reflect true and fair statement of affairs and thus it is apparent some of the transactions are also not recorded in the books of front companies like that of assessee Company. The claim of exemption U/s.I0A in the case of Satyam Computer Services Ltd was found to be false by CBI, SFIO and the department.
Arguments by the Ld Counsel's with respect to Reason III are as follows:
• The reasoning under this is vague and general. It is a surmise and guess work of the AO. The AO had not presented any evidence that the financial statements of front companies are not true or fair. This is a conclusion without rational connection with the evidence (Statement of Mr.B.Ramalinga Raju) for formation belief. The claim u/s 10A of SCSL has no relevance with assessment of SVES.
• The assessee company objected to the reasons for reopening furnished by the AO, on the similar lines explained above. These objections were repudiated by the AO. The reasoning given by the AO and the Page 25 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad justification of the assessee are provided hereunder:
• In his letter, AO mentioned:
"3. It is objected that the statement made by Sri B.Ramalinga Raju, the erstwhile Chairman of Satyam Computer Services Ltd (your Parent Company) does not contribute in any way to subscribe to the reason to believe any income escaped assessment and the provisions of Sec. 148 r. w.s. 147 of the Income Tax Act 1961 cannot be invoked. However the above statement and the events followed thereafter assumes significance in as much as the erstwhile Chairman of SCSL admitted that the Company's balance sheet as at September, 30, 2008 carried an inflated cash and bank balances, non-existent accrued interest, an understated liability and an overstated debtors position. As the SCSL's accounts/Balance sheet referred by the then Chairman, includes the financial results of the subsidiaries and joint ventures of SCSL, the assessing officer had reason to believe that the above admission of financial irregularities and the financial seam at Satyam Computers, your parent company, had ramification on the financials of your company as well, as your company is joint venture, controlled and managed by the Sat yam Management headed by Sri B.Ramalinga Raju in India given the fact that the other JV partner is located outside India.
On the above reason, given the managerial and financial nexus between your company and parent company, SCSL, the assessing officer had prima Page 26 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad facie reason to believe that the income chargeable to tax had escaped assessment given the volume of transactions and the item-wise confession made by the then Chairman of SCSL. In view of the above, your objection that the statement of Sri B.Ramalinga Raju does not contribute to subscribe to the reason to believe that income chargeable to tax had escaped assessment has no meaning in it. "
16. The Assessing Officer completed the assessment by making the following three adjustments to the returned income.
Nature of addition Amount (Rs. In crores) TPO Order (Adjustment on account of ALP) Commission paid to AE
Net of disallowance in original 143(3) 1.66 and 263 (Rs.4.26 - Rs.2.60) Export sales: (Rs.8.62 - Rs.0.72) 7.90 AO Order Section 10A adjustment to export sales 0.89 under explanation 2(iv) u/s 10A TOTAL 10.45 The Ld. Counsel submitted as follows:
17. The first two adjustments arise out of the Transfer Pricing Officer having changed his opinion in respect of determination of the arm's length price of the international transactions. None of Page 27 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad the reasons cited by the AO for reopening of the assessment had indicated any possible escapement. The escapement of income contemplated U/s.147 should arise from either non recording of a particular stream of income / expenditure or short or excess recording thereof. Transfer Pricing adjustment are differences arising on account of possible changes in the ALP depending upon the methods adopted. Determination of ALP under transfer pricing mechanism is a process of scientific estimation of an arm's length commercial value. Difference if any arising to the returned income on account of transfer pricing assessment cannot be considered as escapement of income contemplated uls.147. Hence, these two additions do not arise from the reasons for the reopening of the assessment.
18. Apart from the above, adjustment to the retuned income on identical lines had taken place at the time of original assessment proceedings and subsequently during the proceedings U/s.263.
19. The addition made by disallowing a portion of the deduction U/s.I0A arises on account of adjustment to the export turnover. This adjustment to the income was carried out for the first time. However, this adjustment is not one of the reasons for which the assessment was reopened U/s.147 as for the reasons furnished by the AO. Further, the addition pertained to a settled legal position of law where an adjustment to the export turnover should also' result in an adjustment to the total turnover. This addition has no bearing to the reason cited by the AO for re- opening the assessment. The reduction in export turnover was made on account of legal interpretation of facts available in the accounts all along and in respect of which there was no failure to disclose on the part of the assessee.
Page 28 of 57ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad
20. Explanation 3 to Sec.147 was introduced by an amendment by Finance (2) Act. 2009 w.e.f. 1.4.1989. The introduction of the Explanation was to overcome to decisions of the Punjab and Haryana High Court and Rajasthan High Court which held that the AO after issue of notice U/s.148 has to restrict his re-assessment (addition) only to the limited extent of income which may have escaped based on the reasons for which the notice was issued. This barred the AO from making any addition other than addition arising on account of reason for reopening the assessment.
21. The Finance Act, 2009 clarified that the said interpretation of the Hon'ble High Court was not the intent of the Parliament. Hence, an Explanation 3 was introduced to Sec.147 which enabled the AO to carry out additions, which also came to the notice of the AO during the assessment proceedings U/s.l47, notwithstanding such additions do not arise from the reasons for reopening U/s.147.
22. The ld Counsel for the assessee relied on the following judicial precedents:
• CIT vs. Jet Airways (I) Ltd (331 ITR 236) • Swarnandhara IJMII Integrated Township Development Company (ITA No.1803/Hyd/2012).
• ACIT, Raipur vs. Major Deepak Mehta (24 Taxmann.com 147 Chattisgarh).
• Ranbaxy Laboratories Ltd vs. CIT (12 Taxmann.com 74 Delhi) • CIT vs. Mohd. Juned Dadani (30 Taxmann.com I. Guj.) Page 29 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad
23. The DR relied on the decision in the case of Majinder Singh Kang v. CIT & Anr.(2012) 344 ITR 0358 and argued that reopening u/s 147 is valid.
24. We heard both the parties. In a recent case the Hyderabad bench of the Tribunal in the case of Rohini Boitecb (P) Ltd and other, ITA No.1233/Hyd/2011 and other appeals jointly disposed vide order dated 31.12.2013, the issue of Section 147, especially in light of Satyam scam was examined. In these sixteen appeals also, assessments were reopened on sole ground that these companies are Sat yam's group companies and Mr.Ramalinga Raju's letter suggests the possible evasion of tax. The Hon'ble Tribunal held as under.
(iv) The reopening was on wrong foundation of reasoning of the financial implication between the assessee-company and M/s Satyam Computer Services Limited, which was no established in the reassessment to justify reopening.
19. Hence, there being no nexus or live-link with the reasons recorded and the ' formation of belief' to come to a conclusion that there was escapement of income and also since the assessment has been reopened beyond the period of 4 years when there is no failure on the part of the assessee to fully and truly disclose all material facts in the original assessment itself, and there being, no tangible material 'for the reopening of the assessment, the CIT(A) erred in confirming the order of the Assessing Officer. We, therefore, Page 30 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad hold that the reopening of the jurisdiction under Section 147 is bad in law ad is to be quashed.
25. Applying the above to the assessment of the assessee the following facts emerge. The AO proceeded to assess the income by issuing a normal questionnaire seeking information from the assessee. He had not issued any specific letter seeking clarification on issues which prompted him to reopen the assessment. He issued show cause notice why the export turnover should not be reduced with respect to the expenditure in foreign currency. In the entire proceedings U/s.143(3) r.w.s 147, the AO had not asked any question or information connecting with the reason for reopening. Finally he completed the assessment U/s.143 r.w.s 147 by making the following additions:
• Disallowance of claim U/s.10A on account of adjustment to export turnover despite the judicial rulings are in favor of the assessee • Addition on account of ALP - ITES sales to AE • Addition on account of ALP - commission paid to AE None of these additions figure in the reasons for reopening. These are other additions which arose during course of assessment.
From the above two irrefutable conclusions emerge:
• The reason for reopening was based on vague information and a mere reason to suspect, only.
• Accordingly, neither enquiry nor addition on account, of reason to reopen resulted in the assessment u/ s Page 31 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad 143 (3) read with section 147.
26. We rely on the decision of Ranjit Reddy vs. Dy. CIT, Hyderabad (2013) 144 ITD 361, wherein it has been held as follows:
"One needs to give a schematic interpretation to the words 'reason to believe' failing which, section 147 would give arbitrary power to AO to reopen assessments on the basis of mere change of opinion, which cannot be per se reason to reopen. The AO has no power to review; he has the power to reassess. But reassessment has to be taxed on fulfilment of certain pre-conditions and if the concept of 'change of opinion' is removed, then, in the garb of reopening the assessment, review would take place. One must treat the concept of change of opinion as an inbuilt test to check abuse of power by the AO. Hence, the AO has power to reopen, provided there is 'tangible material' to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief".
27. Further, para 32 at page 483 in the case of S. Ranjit Reddy (Supra), reads as follows:
"Same view was taken by the Third Member Mumbai Bench in the case of Telco Dadajee Dhackajee Ltd vs. Dy. CIT (ITA No.4613/Mum/2005 dated 12th May, 2010). Further same view was taken by Delhi High Court in the case of CIT vs. Orient Crafts Ltd (2013) 29 taxmann.com 392 and also by Gujarat High Court in the cazse of Inductotherm India (P) Ltd v. Dy. CIT in Special Civil Application 858 of 2006 dated 6.8.2012.
Further Bombay Bench in the case of Delta Airlines Inc. Vs. ITO (International Taxation) (2013) 33 Taxmann.com 192(Mum)."
28. Hence, we are of the opinion that on the facts and in the circumstances of the case, the AO erred in law and facts of the case in reopening the assessment u/s 147 of the I.T. Act, 1961 Page 32 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad after having assessed and re-assessed u/s 143(3) and section
263. Since we have decided the jurisdictional grounds in favour of the assessee, we are not adjudicating on the other grounds of appeal raised before us.
29. In the result assessee's appeal is allowed.
ITA No.1137/Hyd/2013 (A.Y 2004-05)1. The original assessment U/s.143(3) was finalized by an order dated 28.12.2006 by the Assessing Officer basing on the order of the Transfer Pricing Officer (TPO). The assessee had entered into various international transactions (such as export of software engineering services, sales commission, reimbursement of professional charges, reimbursement of CEO's remuneration) with AE which were examined in detail by TPO culminating into an addition to the export sales based on arm's length computation. The TPO based on the Comparable Uncontrollable Price (CUP) method for determination of the arm's length price adopted by the company, proposed an adjustment of Rs.0.05 lakhs to the export income recognized by the company. In this year for the first time the TPO also made an adjustment to the commission paid to Venture Global LLC of Rs.86 Lakhs.
2. Apart from the addition recommended by the TPO the AO also eliminated certain expenditure incurred in foreign currency for computation of exemption U/s.10A. The exemption claimed as per the return of Rs.1.9 Crores had been reduced to Rs.0.24 Crores based on the adjustment to the export turnover. This resulted in a net adjustment of Rs.l.66 Crores on account of Sec.
Page 33 of 57ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad 1 OA to the returned income. The assessment was completed by making the said addition to the total income declared by the company by the AO.
3. Aggrieved by the assessment the assessee filed an appeal before the CIT. The CIT(A) deleted the addition of the TPO of Rs.0.05 lakhs and the adjustment made to the export turnover in favour of the assessee. However, he confirmed the adjustment made by the TPO with respect to the commission of Rs.86 Lakhs. Aggrieved by the said order both the revenue and the company are in cross appeals before the Hon'ble ITAT which are pending disposal.
4. This assessee is currently in appeal before the ITAT. The facts relating to this assessment are given below:
5. The AO issued a notice dated 14.03.2011 U/s.148 reopening the assessment and requesting the company to file a return of income. The said notice was received by the company on 21.03.2011. Subsequent to the notice the company requested the AO to consider the return of income filed originally on 31.10.2004 as return in response to the notice U/s.148. The AO provided the reasons for re-opening. The company objected to the said re-opening, based on the reasons so furnished vide letter dated 29.08.2011. The AO disposed the objections to notice u/s 148 by a letter dated 10.09.2012.
Page 34 of 57ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad
6. The AO proceeded to reassess the income u/s 143(3) r.w.s. 147 accordingly. The AO referred the transactions to the TPO for arm's length price evaluation and also to special audit u/s 142(2A).
Nature of addition Amount (Rs. ALP ALP
In crores) method by method
company by TPO
TPO order (adjustment on
account of ALP)
Commission and 4.84
reimbursement of
professional charges paid to
AE
Export sales 2.52 CUP TNMM
Total 7.36
AO order
Section 10A adjustment to 1.64
export sales under
explanation 2(iv) under
section 10A
Total 9.00
7. Based on the Special Auditor's report and TPO's order, AO made a draft assessment order by proposing the above additions which are in dispute in this appeal.
8. Aggrieved by the proposed draft assessment the company filed objection before the DRP by raising in summary the following grounds:
Page 35 of 57ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad
1. Section 147 - The reopening of assessment u/s 147 after completing the assessment u/s 143(3) does not satisfy the conditions laid down u/s 147.
2. The comparables adopted for determining the ALP of export sales is incorrect due to the functional differences between the Company and comparables.
3. Method adopted for determining the ALP for export sales by the TPO (TNMM) is incorrect.
4. ALP by the TPO for the commission payment without determining and identifying the comparables under CUP method is incorrect.
5. Adjustment to export sales to compute deduction U/s.10A is incorrect in the light of the settled position of the law.
9. The DRP had not appreciated the reasoning put forward by the company in support of the above said grounds and confirmed the draft assessment order of the AO.
10. The draft assessment order upon confirmation by the DRP culminated into final assessment order with the adjustments to the returned income as explained above.
Page 36 of 57ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad
11. Ground No.2 & 3 - before us is whether reopening U/s.147 is valid? i.e. the validity or otherwise of the reopening of the assessment is being objected broadly on two grounds.
i) The reason for reopening is vague and based on absence of any nexus to any of the operations of the appellant.
ii) The assessment is finalized without resulting in any addition on account of reason for reopening.
12. The Assessing Officer reopened the assessment under section 147 beyond the period of four years. Sec.147 permits the reopening/reassessment of assessment finalized under section 143(3) upon satisfaction of the AO that the assessee had failed to disclose fully and truly all material facts necessary for assessment for that assessment year. The reasons given by the AO to reopen assessment in the case of the company would provide a light on his reasoning to conclude failure to disclose fully and truly all material facts necessary for assessment.
13. On 07.01.2009 chairman of the Satyam Computer Services Ltd had written a letter to the Board of Directors of Satyam Computers wherein he elaborately explained various transactions of Satyam Computer Services Ltd which resulted in the financial statements being incorrect. In his statement he categorically stated that these kind of irregularities were limited to Satyam Computers alone and none of the operations of the Page 37 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad subsidiaries have been affected. In the light of the said letter written by Mr.Ramalingaraju and his subsequent statement before the department AO proposed to reopen the assessment U/s.147. explaining various facts derived from the statement of Mr.Ramalingaraju which according to him had a bearing on the assessment of the company.
14. The following are the three major reasons coming out of the reasons recoded by the AO to reopen the assessment U/s.147. The facts relating to these reasons from the assessment record present the validity or otherwise of the reasons.
Reasons for re-opening the assessment as given by the Assessing Officer.
Reason - I "The assessee, Mrs. Sat yam Venture Engineering Services P Ltd, (PANAAFCS3287D), has filed its return of income for the assessment year'2004-05 on 3110-2004 declaring income of Rs. 1,25,02,860. The assessment under section 143(3) was completed on 28.12.2006 determining an income of Rs. 3,82,09,779, after making adjustment as suggested by the TPO U/s. 92CA in respect of income from export of engineering services and commission payment to one of the AE ie., Venture Global (USA). Subsequently on appeal CIT (A) partly allowed the appeal and on commission payment the learned CIT (A) held that it is not an allowable expense as it is not incurred wholly and exclusively for the purpose of business in terms of section 37(1) of the Income tax Act, in view of the assessee's failure to establish the transaction in question i.e., the commission payment to Venture Global on the evidence of specific services rendered by Venture Global resulting benefit to the assessee.
Further on several occasions, the assessee failed to establish the genuineness of the payment of sales Page 38 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad commission to Venture Global before the department, even not produced the original agreements for verification. No evidence was produced to ascertain the nature of services rendered by the payee i.e., the Venture Global during the course of assessment and other proceedings. Thus, there is no necessity for the assessee company to make the payment to Venture Global and accordingly the arm's length price on the Commission payment is to be NIL as against the payment claimed by assessee of Rs.3,66,00,492 and ALP determined by the TPO of Rs.2,80,36,178 on the facts misled by the assessee."
The Ld Counsel submitted as follows:
15. The reasons given by the Assessing Officer stems out from the original assessment order, CIT(A) order and TPO's order. There is no mention of any fresh fact, evidence or information leading the AO to believe possible escapement of income. It is pre-condition of Sec.147 that an assessment completed U/s.143(3) cannot be reopened unless there is a failure to disclose fully and truly material facts necessary for assessment. A change of opinion on the same set of facts will not permit reopening U/s.147. Both the paragraphs above unmistakably revealed the frame of mind of the AO. He narrated the facts already available on assessment record and concluded ALP should have been at nil and demonstrated the change of his opinion by concluding the ALP should have been nil as against Rs.2.8 Crores adopted in original assessment. This is a copy book replica of what an AO should not do for reopening an assessment u/s 147. Hence, there is neither reason nor a justification to reopen the assessment based on the above paragraphs.
Page 39 of 57ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad Reason - II given by the Assessing Officer is as follows:-
"Given the fact that the assessee company being a joint venture company promoted by Satyam Computer Services Ltd under the Chairmanship of Shri. B. Ramalinga Raju, who having confessed to the fact that the accounts of SCSL were fudged and charged with several offences by the investigating agencies in the aftermath of the 'Safyam Scam' and on assessee company's failure to establish the genuineness of the claim of commission payment worth Crores of Rupees, I have reason to believe that income chargeable to tax has escape assessment, within the meaning of Section 147 read with section 149 of the l. T Act. and there is failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for A. Y 2004-05. For the above detailed reasons, it is proposed to issue notice to the assessee under section 148 of the I. T Act to re-open the assessment in the assessee's case for the assessment year 2004-05 for bringing to tax the income chargeable to tax which has escaped assessment. "
The Ld Counsel submitted as follows:-
16. The allegations that the assessment needs to be reopened U/s.147 based on the statement of Mr.Ramalingaraju, Chairman, Satyam Computers, has no nexus with the financial transactions of the company. The statement by Mr.Ramalingaraju consisted details of certain transactions relating to Satyam Computers. The said statement of Mr.Ramalingaraju excludes the affairs of any subsidiary companies from the said irregularities pointed out by him. Please refer to Para 2 of Letter by Mr.Ramalinga Raju (page 22 of paper book of AY 2003-04) stating that, " The gap in the Balance Sheet has arisen purely on account of inflated profits over a period of last several years (limited only to Satvam standalone, books of subsidiaries reflecting true performance) Page 40 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad
17. None of the material narrated by the AO in the reasons given by him related to the assessee company or had any bearing on the assessment. The assessee company is obliged to disclose truly and fully all the facts to enable completion of its assessments. The assessee cannot be obliged to disclose any information with respect to group companies which has no relevance to its assessments.
18. The transaction relating to payment of commission was examined by the TPO, AO and CIT(A) in the original assessment proceedings. In the absence of adequate documentation as considered by them they did disallow a portion of the commission paid. The statement of the Chairman of Sat yam Computer Services Ltd or any of the transactions narrated by him have not referred to the transaction of commission.
19. The reason elucidated by the AO should lead a rational person to the belief of possible escapement of income. In other words the reason should direct, an enquiry as to quantification of income that is found to have escaped assessment. The reason and the belief from the above cited paragraph stand poles apart without a nexus. Hence, the reasons cited by the AO to reopen the assessment do not prove failure of disclosure by the assessee.
Page 41 of 57ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad
20. Further there is no fresh fact nor a finding which can lead to reopening of the assessment U/s.147. The substance of the Joint Venture agreement understanding between the parties and consideration for making the payment were extensively presented to the TPO and AO at the time of original assessment.
21. The Assessing Officer relied on the judgment of the Supreme Court in ACIT Vs Rajesh Jhaveri Stock Brokers Pvt Ltd. to explain the meaning of reason to believe to reopen the assessment U/s.l47. As held by the Supreme Court at the stage of initiation of proceedings the AO should have a reason to believe and need not establish the facts of escapement of income. The test laid down by the Supreme Court is, whether based on the information before the AO any reasonable person could have formed an opinion to reopen the assessment. Hence, the AO should have demonstrated by feeblest of the fresh facts, relevant to the assessment of the assessee company to reopen the assessment. General remarks relating to group companies and the transactions interse cannot be a fresh fact which is relevant to the assessment of the assessee. These facts were not known to the assessee at the time of assessment as they are not germane to any of the transactions of the company. In the absence of knowledge of such transactions of the group companies and because of absence of any link with the said transaction to the company, they are neither relevant to the assessment of the company nor require disclosure.
Page 42 of 57ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad
22. The ld DR relied on the decision in the case of Majinder Singh Kang v. CIT & Anr.(2012) 344 ITR 0358 and argued that reopening u/s 147 is valid.
23. The ld Counsel for the assessee relied on the following judicial precedents:
• CIT vs. Jet Airways (I) Ltd (331 ITR 236) • Swarnandhara IJMII Integrated Township Development Company (ITA No.1803/Hyd/2012).
• ACIT, Raipur vs. Major Deepak Mehta (24 Taxmann.com 147 Chattisgarh).
• Ranbaxy Laboratories Ltd vs. CIT (12 Taxmann.com 74 Delhi) • CIT vs. Mohd. Juned Dadani (30 Taxmann.com I. Guj.)
24. We heard both parties. We rely on the decision of Ranjit Reddy vs. Dy. CIT, Hyderabad (2013) 144 ITD 361, wherein it has been held as follows:
"One needs to give a schematic interpretation to the words 'reason to believe' failing which, section 147 would give arbitrary power to AO to reopen assessments on the basis of mere change of opinion, which cannot be per se reason to reopen. The AO has no power to review; he has the power to reassess. But reassessment has to be taxed on fulfilment of certain pre-conditions and if the concept of 'change of opinion' is removed, then, in the garb of reopening the assessment, review would take place. One must treat the concept of change of opinion as an inbuilt test to check abuse of power by the AO. Hence, the AO has power to reopen, provided there is 'tangible material' to come to the conclusion that there is escapement of income from assessment.Page 43 of 57
ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad Reasons must have a live link with the formation of the belief".
25. Further, para 32 at page 483 in the case of S. Ranjit Reddy (Supra), reads as follows:
"Same view was taken by the Third Member Mumbai Bench in the case of Telco Dadajee Dhackajee Ltd vs. Dy. CIT (ITA No.4613/Mum/2005 dated 12th May, 2010). Further same view was taken by Delhi High Court in the case of CIT vs. Orient Crafts Ltd (2013) 29 taxmann.com 392 and also by Gujarat High Court in the cazse of Inductotherm India (P) Ltd v. Dy. CIT in Special Civil Application 858 of 2006 dated 6.8.2012.
Further Bombay Bench in the case of Delta Airlines Inc. Vs. ITO (International Taxation) (2013) 33 Taxmann.com 192(Mum)."
26. We are of the opinion that there is no fresh fact or 'tangible material' to come to the conclusion that there is escapement of income from assessment. The entire joint venture agreement understanding between the parties and consideration for making the payment was put forth before the TPO and the AO at the time of original assessment. Since reasons recorded also do not have any link with the formation of belief. In the present case before us the statement of Ramalinga Raju has no connection with the subsidiary of Satyam Group i.e. Satyam Venture Engineering Services, Hyderabad (Assessee herein).
27. Hence, order u/s 143(3) r.w.s. 147 & 144C(5) of I.T. Act, 1961 is cancelled and appeal of the assessee is allowed.
Page 44 of 57ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad ITA No.1904/Hyd/2011 (A.Y 2002-03) Assessee's Appeal:
1. Assessee filed return of income for A.Y 2002-03 on 31.10.2012 declaring a total income of Rs.24,97,979. The company claimed exemption u/s 10A to the extent of Rs.3,93,35,453. The said return of income was processed u/s 143(1) on 6.2.2003. Subsequently the assessment proceedings were reopened on 26.03.2009 u/s 148.
2. AO reopened the said proceedings u/s 148 by recording reasons for such reopening as required u/s 147. The AO recorded that Mr. S. Ramalinga Raju, Ex-Chairman of Satyam Computer Services Ltd has stated through a letter addressed to the Board of Directors of SCSL that the accounts of SCSL were fudged for the last so many years. Mr. Raju gave similar confession through a sworn statement recorded u/s 131 of the I.T. Act on 21.02.2009 by the Department.
3. AO further recorded that information gathered revealed that the revenues recorded and the expenditure debited in the case of assessee are manipulated to evade income tax.
Page 45 of 57ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad
4. On the strength of the above said reasoning, AO reopened assessment accordingly. It is pertinent to note that in the statement referred above Mr. Ramalinga Raju stated that accounts related to SCSL are not correct. He noted in his statement that the said practices were not carried out with regard to accounts of the subsidiary companies of SCSL.
5. AO referred the accounts of the assessee to special audit u/s 142(2A) in the light of the reasons recorded for reopening of the assessment. The special audit was considered appropriate by the AO as the assessee company being a joint venture of SCSL and having transactions with SCSL, the financial results of the assessee company may have been effected in view of its transactions with SCSL.
6. During the course of the assessment the AO had also made a reference u/s 92CA of the Act to the TPO with the approval of the CIT (Central) Hyderabad for determining the arm's length price of its international transaction. The TPO after examining the international transactions of the assessee company with AE made the following adjustments: (Rs.in crores) Nature of Amount as per Arm's Adjustment international financial length transaction statements price Export of software 1.33 1.5 0.17 engineering services Sales commission 3.35 Nil 3.35 Total adjustment 3.52 Page 46 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad
7. Based on the above adjustment to the international transactions as recommended by the TPO, AO finalized the assessment after considering the Special Audit Report and Transfer Pricing Officer order by making the following adjustments:
ALP Adjustment - Commission to AE
- Export of software services Re-computation of exemption- Adjustment to export turnover u/s 10.
Particulars Amount (in Rs.) Returned income 24,97,979 Adjustment ALP Commission 3,35,00,000 Export Sales 17,00,000 Disallowance of exemption claimed 1,73,38,497 (Rs.3,93,35,453 claimed - Rs.2,19,96,956 allowed) Income as determined by AO 5,50,36,476
8. During the previous year, the assessee paid Rs.3.35 crores to Venture Global @ 10% on the gross sales. Assessee explained to the TPO that the commission was paid to the JV Partner Venture Global Engineering Services LLC that the said payments was made for customer identification, introduction, customer relations management and work solicitation and procurement. TPO failed to appreciate the object of the joint venture and the business synergy brought into the assessee company by both the JV Partners. He considered CUP method as the most appropriate method to determine the ALP for payment of commission. The Page 47 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad TPO refused to accept that commission of 10% is considered normal practice and should be considered as appropriate. The TPO having adopted CUP method as the most appropriate method failed to bring out comparable entities or comparable transactions. He simply adopted arm's length price as Nil under the CUP method.
9. TPO examined the TP documentation filed by the assessee and identified certain short comings and considered it defective. He observed that the assessee had used multiple year data for arriving at the arithmetic mean of the margins of comparable companies. He accordingly rejected the TP documentation filed. After having carried out analysis, he considered TNMM as the most appropriate method and accordingly applied the same. The PLI of 28.84% determined accordingly was applied as the percentage on operating cost (OP/OC) to ascertain the ALP adjustment.
10. AO had also recomputed the exemption u/s 10A while computing the income of the assessee company. AO had considered the following expenditure incurred in foreign currency as not entitled to be part of eligible export turnover for exemption thereof:
Nature of the item Amount (Rs.)
Travelling expenses 1,36,94,298
Expenditure incurred at overseas branch 11,45,16,705
Others 1,34,31,415
Total 14,16,42,418
Page 48 of 57
ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad
11. Draft assessment order sent to the Department. Aggrieved against the draft assessment order u/s 143(3) r.w.s. 147 and 144C the assessee raised objection before the DRP by raising appropriate grounds.
12. The grounds raised against the reopening u/s 147 were rejected by the DRP. DRP considered where a return is processed u/s 143(1) there is no finding given by the AO and hence reopening is justified. Despite the AO or TPO not having identified either bogus payments or inflated expenditure, the DRP erroneously observed that it is a well known fact that in this group the expenditure was inflated, bogus payments were made etc. For these reasons, they held the reopening u/s 147 as valid.
13. Also objected to on merits against the Arm's Length Price Adjustment.
14. Before us, the assessee raised additional grounds which are as follows:
"(i) On the facts and in circumstances of the case, the ld AO erred in law and facts in reopening the case u/s 147 without a valid reason to believe the income escaped assessment".
(ii) The AO erred on facts and law in not excluding the similar amount incurred in foreign currency and excluded from export turnover from the total turnover".
Page 49 of 57ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad
15. The Department raised no objection for admission of the additional grounds. Hence, we admit the same.
16. The DR relied on the decision in the case of Majinder Singh Kang v. CIT & Anr.(2012) 344 ITR 0358 and argued that reopening u/s 147 is valid.
17. The validity or otherwise of the reopening of the assessment is being objected broadly on two grounds:
i) The reason for reopening is vague and based on absence of any nexus to any of the operations of the assessee.
ii) The assessment is finalized without resulting in any addition on account of reason for reopening.
18. The ld Counsel submitted that as explained above, the reopening u/s 147 was based on the letter addressed by Mr. Ramalinga Raju to the Board of Directors of SCSL and the sworn deposition given thereto. AO also recorded further that "information gathered revealed that the revenues recorded and the expenditure debited in the case of the assessee are manipulated to evade income tax".
19. The ld Counsel further submitted that the reasons recorded by the AO on the file are as follows:
i) Mr S Ramalinga Raju, Ex-Chairman of SCSL wrote a letter to the Board of Directors of SCSL on 7 Jan 2009 confessing that Page 50 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad the books of accounts of SCSL were not reported correctly. Mr Ramalinga Raju had also stated in his letter that the subsidiaries are reflecting true performance.
ii) Sworn deposition recorded by the Department. Reiteration of the facts mentioned in the above letter.
iii). Information gathered revealed that the revenues recorded and the expenditure debited in the case of the assessee are manipulated to evade income tax.
The Ld. Counsel submitted as follows:-
20. The statement of Mr. Ramalinga Raju prompted the AO's attention towards SCSL. AO must have presumably considered that the contents of the letter and the statement may not be adequate to reopen assessment of the assessee. Hence, proceeded to the next step and noted that he had gathered information that the income of the assessee company is also manipulated. However, he did not dwell on the nature of the information in his possession to assess whether the said information gave rise to a reason to believe. He also failed to seek clarification regarding the information that gathered during the assessment giving rise to his reason to believe. This gives to conclusion that the said information is either not present or it was not gathered at all. Finally the penultimate test of validity of the reason to reopen, resulting in addition or adjustment to the income reassessed also fails, because there was neither enquiry in this direction nor addition in the assessment completed u/s 143(3) r.w.s. 147.
Page 51 of 57ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad
21. The Ld Counsel further stated excepting the statement made by Assessing Officer, there was no material available with any agency within two months after the statement. (The assessee's case is reopened within 3 months from the date of confession by Mr RamalingaRaju.). The trial of the offences committed by Mr Ramanlinga Raju, even after five years has not reached a finality nor the charges filed against SCSL had indicated any irregularities in subsidiaries of SCSL. In the above circumstances, what is stated in the letter and statement do not give rise rational reason to reopen the appellant's case.
22. The Ld. Counsel submitted the notice under Sec.148 was issued based on vague reasons and there was no tangible or definite information which could lead to the formation of belief that income chargeable to tax has escaped assessment. In this connection, the assessee relies on the undermentioned decisions where notice issued u/s.148 was quashed for vagueness.
i) I.T.O vs On Exim (P).Ltd (and vice versa) ITA No:1116/Del/ll&112/Del/11, ITAT "B" Bench Delhi
ii) Addl.C.I. T vs Shreyas Gramin Bank (2012) 25 taxmann.com 282 (SC) 23 The Ld Counsel of assessee also submitted that the relevant assessment year in this case is 2002-03 and the notice u/s.148 was issued in March, 2009 i.e., beyond the period of 4 years from the end of the assessment year. The case falls under Sec.149( 1 )(b), the prerequisite for applying this section being that income of Rs.One Lakh or more should have escaped assessment. The Page 52 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad reasons recorded by the A.O have not pinpointed as to which transaction(s) or events have resulted in underassessment of income of Rs.One Lakh or more. In this connection we rely on the undermentioned decisions for the proposition that where the Assessing Officer has not pinpointed the escapement of income of Rs.One lakh or more, the reopening of assessment is not valid.
i) Mahesh Kumar Gupta vs C..T 33 Taxmann.com 409 ALL
ii) Mrs.Harniranjan Kaur vs I.T.O ITANos 522 & 523/ASR/2011 dated, 31/10/2012
24. The Ld Counsel argued that the reason to believe must have material bearing on the escapement of income. The reason to believe opens the door for reassessment. The first step in process reassessment under section 143(3) read with section 147 is enquiry based on the reason to ascertain the income if any had escaped. None of the reasons recorded by the AO indicates a lead for further inquiry to an area or group of transactions of the appellant Company. It is most important to appreciate at this juncture the routine enquiry carried out by the AO as if i is assessment under section 143(3). He did not refer to the "information gathered" which was recorded as the reason for any further enquiry during the assessment process. Neither the enquiry nor the additions made had any nexus or link with supposed reason for reopening of assessment. The reason to believe as recorded had not left any footsteps on the reassessment. The reassessment u/s 143(3) r.w.s 147 caused normal inquiry that would happen u/sI43(3) leaving undeniable Page 53 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad evidence that the reassessment was a normal assessment in guise of reopening u/s 147.
25. The Ld Counsel contended that the reasons to believe must have a rational connection with or relevant bearing on the formation of the belief. The reason recorded must have a rational connection with the belief. The material in possession of the AO should have a direct nexus to the said belief. The material should be adequate enough to make the AO believe possible escapement of income. The test of rational connection fails where there is no material or the material gives rise only a suspicion not leading to belief. The material should not be vague or guess or gossip or rumor. The reason cited by the AO cannot be pretence to reopen the assessment. It cannot be purely subjective satisfaction of the AO. It should be capable to being tested for connection and rationality to cause belief.
26. The ld Counsel also relied on The ld Counsel for the assessee relied on the following judicial precedents:
• CIT vs. Jet Airways (I) Ltd (331 ITR 236) • Swarnandhara IJMII Integrated Township Development Company (ITA No.1803/Hyd/2012).
• ACIT, Raipur vs. Major Deepak Mehta (24 Taxmann.com 147 Chattisgarh).
• Ranbaxy Laboratories Ltd vs. CIT (12 Taxmann.com 74 Delhi) • CIT vs. Mohd. Juned Dadani (30 Taxmann.com I. Guj.) Page 54 of 57 ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad
27. We heard both the parties. In a recent case the Hyderabad bench of the Tribunal in the case of Rohini Boitecb (P) Ltd and other, ITA No.1233/Hyd/2011 and other appeals jointly disposed vide order dated 31.12.2013, the issue of Section 147, especially in light of Satyam scam was examined. In these sixteen appeals also, assessments were reopened on sole ground that these companies are Sat yam's group companies and Mr.Ramalinga Raju's letter suggests the possible evasion of tax. The Hon'ble Tribunal held as under.
(iv) The reopening was on wrong foundation of reasoning of the financial implication between the assessee-company and M/s Satyam Computer Services Limited, which was no established in the reassessment to justify reopening.
19. Hence, there being no nexus or live-link with the reasons recorded and the ' formation of belief' to come to a conclusion that there was escapement of income and also since the assessment has been reopened beyond the period of 4 years when there is no failure on the part of the assessee to fully and truly disclose all material facts in the original assessment itself, and there being, no tangible material 'for the reopening of the assessment, the CIT(A) erred in confirming the order of the Assessing Officer. We, therefore, hold that the reopening of the jurisdiction under Section 147 is bad in law ad is to be quashed.
Page 55 of 57ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad
28. With respect to the reopening, we have already given our finding at Para.31 in ITA No.1136/Hyd/2013 relying on the decision in the case of Ranjit Reddy vs. Dy. CIT, Hyderabad (2013) 144 ITD 361, wherein it has been held as follows:
"One needs to give a schematic interpretation to the words 'reason to believe' failing which, section 147 would give arbitrary power to AO to reopen assessments on the basis of mere change of opinion, which cannot be per se reason to reopen. The AO has no power to review; he has the power to reassess. But reassessment has to be taxed on fulfilment of certain pre-conditions and if the concept of 'change of opinion' is removed, then, in the garb of reopening the assessment, review would take place. One must treat the concept of change of opinion as an inbuilt test to check abuse of power by the AO. Hence, the AO has power to reopen, provided there is 'tangible material' to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief".
29. Further, para 32 at page 483 in the case of S. Ranjit Reddy (Supra), reads as follows:
"Same view was taken by the Third Member Mumbai Bench in the case of Telco Dadajee Dhackajee Ltd vs. Dy. CIT (ITA No.4613/Mum/2005 dated 12th May, 2010). Further same view was taken by Delhi High Court in the case of CIT vs. Orient Crafts Ltd (2013) 29 taxmann.com 392 and also by Gujarat High Court in the case of Inductotherm India (P) Ltd v. Dy. CIT in Special Civil Application 858 of 2006 dated 6.8.2012.
Further Bombay Bench in the case of Delta Airlines Inc. Vs. ITO (International Taxation) (2013) 33 Taxmann.com 192(Mum)."
30. Hence, we are of the opinion that the order passed by the AO u/s 143(3) r.w.s. 147 r.w.s. 144C(5) of the I.T. Act, 1961 is to be cancelled. Hence we allow the assessee's appeal.
Page 56 of 57ITA Nos.492 of 08 and others Satyam Venture Engg Services Pvt Ltd Hyderabad
31. In the result, assessee's appeal is allowed.
32. To sum up, appeals are decided as under:
Appeal No. A.Y. Decision 492/Hyd/2008 (Assessee) 2003-04 Allowed 196/Hyd/2008(Assessee) 2003-04 Allowed 783/Hyd/2008 (Revenue) 2003-04 Dismissed 924/Hyd/2008 (Assessee) 2003-04 Dismissed 1136/Hyd/2013 (Assessee) 2003-04 Allowed 1137/Hyd/2013 (Assessee) 2004-05 Allowed. 1904/Hyd/2011 (Assessee) 2002-03 Allowed
Order pronounced in the Open Court on 1st July, 2015.
Sd/- Sd/-
(P.M. Jagtap) (Asha Vijayaraghavan)
Accountant Member Judicial Member
Hyderabad, dated 1st Juy, 2015.
Vnodan/sps
Copy to:
1. M/s. Satyam Venture Engg. Services (P) Ltd. May Fair Centre, SP Road, Secunderabad 500003
2. Commissioner of Income Tax-III Hyderabad
3. AO ACIT Circle 3(1) Hyderabad
4. The DR, ITAT, Hyderabad
5. Guard File By Order Page 57 of 57