Income Tax Appellate Tribunal - Bangalore
M/S Jamcracker Software Technologies ... vs Dcit, Bangalore on 1 June, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH : BANGALORE
BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER
AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER
IT(TP)A No.257/Bang/2016
Assessment year : 2011-12
M/s. Jamcracker Software Technologies Vs. The Deputy Commissioner of
Private Limited, Income tax,
AMR Tech Park, 1A 23 & 24, Circle 4(1)(1),
Hosur Road, Bengaluru.
Bengaluru - 560 068.
PAN: AABCJ 3475C
APPELLANT RESPONDENT
Appellant by : Shri G.S. Prashanth, CA
Respondent by : Ms. Neera Malhotra, CIT(DR-II)(ITAT), Bengaluru.
Date of hearing : 21.05.2018
Date of Pronouncement : 01.06.2018
ORDER
Per N.V. Vasudevan, Judicial Member
This is an appeal by the assessee against the order passed by the Deputy Commissioner of Income-tax, Circle - 4(1)(1). Bengaluru dated 31.12.2015 under section 144C of the Income Tax Act. 1961 (the Act).
2. The assessee is a subsidiary of Jamcracker Inc, USA and is engaged in the business of rendering software development and other IT services, eligible for claiming deduction under section 10A of the Act. The assessee rendered software development services and IT services to its holding company and therefore income from such transaction has to be IT(TP)A No.257/Bang/2016 Page 2 of 4 determined having regard to arm's length price (ALP) as per the provisions of section 92 of the Act.
3. For the impugned assessment year 2011-12, the appellant filed its return of income on 29.09.2011 declaring total income of Rs. 7,090/- after claiming deduction under section 10A of .the Act amounting to Rs. 2,20,63,851/-.
4. The ld. Transfer Pricing Officer (TPO), to whom the AO made a reference for determining the ALP, vide letter dated 21.03.2014 called upon the assessee to submit documents maintained under the provisions of section 92D of the Act and all the documents as sought were provided by the assessee. vide letter dated 23.05.2014. The TPO issued notice dated 01.10.2014 upon the assessee to show cause as to why the TP Documentation should not be rejected. adopting the comparables selected by the TPO and calling for objections. The assessee vide letters filed on 07.11.2014 and 19.11.2014 submitted detailed replies demonstrating why the learned TPO should not proceed with the proposed comparables. The TPO, however, proceeded to pass the order under section 92CA of the Act and determined the average net operating margin at 24.82%, thereby proposing an adjustment of Rs. 1,53,49,413/-.
5. The AO passed draft assessment order proposing addition to the total income of Rs.1,53,49,413 consequent to determination of ALP. The AO also recomputed the deduction claimed under section 10A of the Act by excluding the expenses incurred in foreign currency amounting to Rs. 23.78,038/-, thereby making additions to the extent of Rs. 12,48,271/- as excess claim of deduction under section 10A of the Act.
6. The appellant, aggrieved by the draft assessment order passed by the AO, filed its objections before the Dispute Resolution Panel (DRP) in IT(TP)A No.257/Bang/2016 Page 3 of 4 accordance with law on 13.03.2015. Subsequently, the assessee also filed paper book and concise arguments on 09.09.2015. The DRP fixed the hearing on 16.11.2015. Since none appeared on behalf of the assessee, the DRP passed its directions ex parte.
7. The DRP by its ex parte directions dated 19.11.2015 rejected almost all the objections of the assessee, but directed the AO to reduce the expenses incurred in foreign currency from both export turnover as well as total turnover which resulted in deletion of the entire additions made of Rs. 12,48,271/- by the AO as excess claim of deduction under section 10A of the Act. Further with regard to the TP adjustment made, the learned DRP directed to exclude companies not passing turnover filter of Rs. 1 to 200 crore which resulted in exclusion of 6 comparables selected by TPO and the TP adjustment was recomputed at Rs. 1,62,42,787.
8. The AP passed final order of assessment by considering the directions of the DRP vide order u/s. 144C of the Act dated 31.12.2015. Aggrieved by the order of assessment, the assessee has filed the present appeal before the Tribunal.
9. We have heard the rival submissions. Since the DRP has given ex parte directions, we are of the view that the order of the AO incorporating the directions of the DRP should be set aside and the DRP should be directed to consider the objections of the assessee afresh, after affording the assessee opportunity of being heard. The ld. Counsel for the assessee submitted that to the extent the DRP has given relief, the directions of the DRP should be sustained. The ld. DR, however, submitted that the entire directions of the DRP should be set aside as the directions are passed ex parte. We are of the view that the entire directions of the DRP should be set aside in the facts and circumstances of this case. The applicability of all filters can be re-examined by the DRP, if it IT(TP)A No.257/Bang/2016 Page 4 of 4 so desires. In this regard, we may also make it clear that the DRP is at liberty to follow its earlier directions insofar as it relates to the relief allowed to the assessee in its ex parte directions. With these observations, we set aside the order impugned in this appeal with directions to the DRP to provide opportunity of hearing to the assessee and pass directions thereafter against the draft assessment order of the AO.
10. For statistical purposes, the appeal is treated as allowed.
Pronounced in the open court on this 1st day of June, 2018.
Sd/- Sd/-
( INTURI RAMA RAO ) ( N.V. VASUDEVAN)
Accountant Member Judicial Member
Bangalore,
Dated, the 1st June, 2018.
/ Desai Smurthy /
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file
By order
Senior Private Secretary
ITAT, Bangalore.