Income Tax Appellate Tribunal - Delhi
Adobe Software India (P) Ltd., Noida vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'A' DELHI
BEFORE SHRI C.L. SETHI AND SHRI K.G. BANSAL
ITA No. 4061(Del)/2010
Assessment Year: 2006-07
Adobe Software India Private Ltd., Additional Commissioner
(Now merged with Adobe Systems Vs. of Income-tax, Noida Range,
India Private Ltd.), Plot No. 1-1A, Noida (U.P).
City Centre, Sector-25A, Noida.
PAN-AADCM8179G
Adobe Software India Private Ltd.
PAN-AACCA2982J
Adobe Systems India Private Ltd.
(Appellant) (Respondent)
Appellant by : S/Shri Salil Kapoor &
Sanat Kapoor, Advocates
Respondent by : Shri Ashok Pandey, CIT, DR
ORDER
PER K.G. BANSAL : AM This appeal emanates from the order of the Assessing Officer passed on 12.07.2010 under the provisions of section 143(3) read with section 144C of the Income-tax Act, 1961, relating to assessment year 2006-07.
2 ITA No. 4061(Del)/20101.1 The assessee has raised the following grounds in its appeal:-
"On the facts and circumstances of the case and in law, the ld. Assessing Officer ('AO') has erred in passing the assessment order u/s 143(3) r.w.s. 144C of the Income-tax Act, 1961 ('the Act') after considering the adjustments proposed by the ld. Transfer Pricing Officer ('TPO') in his order passed u/s 92CA(3) of the Act and thereby approved by the Hon'ble Dispute Resolution Panel ('DRP').
Each of the ground is referred to separately, which may kindly considered independent of each other.
That on the facts and circumstances of the case and in law,
1. The AO/DRP has erred in confirming the order passed u/s 92CA(3) of the Act making an addition of Rs. 3,00,45,367/- to the total income of the appellant on account of adjustment in the arm's length price of the international transaction entered by the appellant with its associated enterprises.
2. The DRP has erred in concurring with findings of the AO/TPO and disregarding the economic analysis undertaken by the appellant for establishing the arm's length price of the international transactions related to software development without appropriate justification.
3. The TPO/AO has erred by not accepting the economic analysis undertaken by the assessee in accordance with the provisions of the Act read with the Income Tax Rules, 1962, and conducting a fresh economic analysis for the determination of the ALP of the impugned international transaction and holding that the assessee's international transaction is not at arm's length.
4. The TPO/AO has erred in determining the arm's length margin/price using only financial year 2005-06 data 3 ITA No. 4061(Del)/2010 which was not available to the assessee at the time of complying with the TP documentation requirements.
5. The TPO/AO has erred in rejecting certain comparable companies identified by the assessee where consolidated results had been used for analysis. The assessee had considered the consolidated results in only those case where the software related income of the Indian operations constituted more than 75 per cent of the consolidated company-wide/segmental revenues.
6. The TPO/AO has erred by rejecting certain comparable companies identified by the assessee using turnover < Rs. 1 crore as a comparability criterion.
7. The TPO/AO has erred by rejecting certain comparable companies identified by the assessee as having economic performance contrary to the industry behavior.
8. The TPO/AO has erred by rejecting certain comparable companies identified by the assessee as having different accounting year (i.e., companies having accounting year other than March 31 or companies whose financial statements were for a period other than 12 months).
9. The TPO/AO has erred by rejecting certain comparable companies identified by the assessee using employee cost greater than 25 percent of the total revenues as a comparability criterion.
10. The TPO/AO has erred by rejecting certain comparable companies identified by the assessee using onsite revenues greater than 75 percent of the onsite revenues as a comparability criterion.
11. The TPO/AO has erred by exercising his powers under section 133(6) of the Act to obtain information which was not available in public domain and relying on the same for comparability purposes.4 ITA No. 4061(Del)/2010
12. The TPO/AO has erred by not providing the assessee any opportunity of being heard in certain cases.
13. The TPO/AO has erred by not taking into consideration foreign exchange fluctuation gain/loss and provisions written back in computing the operating margins of the comparable companies.
14. The TPO/AO has erred by not making suitable adjustments to account for differences in the risk profile of the assessee vis-à-vis the comparables.
15. The TPO/AO has erred in not providing the benefit of the arm's length range as provided under proviso to section92C of the Act for purposes of computing the arm's length price under section 92F of the Act.
16. The AO has erred in not allowing set-off of unabsorbed depreciation, to the extent of the returned income for the assessment year 2006-07."
1.2 The assessee moved an application for admission of two additional grounds, which read as under:-
(i) "The assessment order passed u/s 143(3) read with section 144C is illegal, bad in law and without jurisdiction.
(ii) The assessment has been completed on the non-existing entity and not on the amalgamating/successor company. Hence, the assessment order passed u/s 143(3) read with section 144C is void-ab-initio and the same is liable to be quashed."5 ITA No. 4061(Del)/2010
1.3 It may be mentioned that the assessee had moved an application for stay of demand on 03.09.2010. This application was disposed off on 23.09.2010 by making the following interim order:-
"5. We have gone through the record and having regard to the order of the DRP and the TPO, we are convinced that there is a prima facie case of the assessee before the Tribunal. We, therefore, restrain the department from enforcing the recovery of demand for this assessment year and direct that the same be stayed for a period six months or disposal of the appeal whichever is earlier. As the appeal is already posted for hearing on 1.11.2010, it shall be ensured by both the sides that the matter does not get unnecessary adjournment on the date of hearing. In the event, the assessee seeks an adjournment, the bench is at liberty to vacate the stay at the time of hearing. The parties are directed to file the paper books necessary for arguing the matter well in advance."
1.4 The aforesaid interim order ceases to have force on passing the final order on the appeal.
2. The facts of the case are that the assessee filed its return on 23.11.2006 declaring nil income. The assessee had computed the business income at ` 7,33,01,097/-, which was claimed to be not includible in the total income under the provisions of section 10A of the Income-tax Act, 1961. The return was processed u/s 143(1) and refund 6 ITA No. 4061(Del)/2010 of ` 434,560/- was granted to the assessee. Thereafter, the case was selected for scrutiny and a notice u/s 143(2) dated 14.07.2008 was served on the assessee. In response thereto, Shri Vikas Aggarwal, Chartered Accountant, attended from time to time. The assessee is engaged in development of software used in various fields, which has been exported to Adobe Systems Inc., USA and Macromedia Ireland Limited, Ireland, both of them being associated concerns. The assessee has also provided marketing and support services to Adobe Systems Software Ireland Limited, Macromedia Neitherland BV and its subsidiaries, all being associated concerns. In the course of assessment proceedings, it was found that the assessee entered into international transactions with the associated concerns and the aggregate value of such transactions was declared at ` 37,12,95,276/-. The valuation of these transactions was referred to the Transfer Pricing Officer, who determined the arm's length price at ` 40,13,40,643/-, resulting in adjustment of ` 3,00,45,367/-. Therefore, it was proposed to enhance the total income of the assessee by an amount of ` 3,00,45,367/-. The matter was referred to the Dispute Resolution Panel ("DRP" for short) under the provisions of section 144C of the Act. The DRP heard S/ShriVijay Iyer and Anuj 7 ITA No. 4061(Del)/2010 Khorana, authorized representatives from S.R. Batliboi & Co., Chartered Accountants. Detailed submissions in respect of grounds of objections were filed. After considering the order proposed by the AO and the objections, the DRP disposed off the matter by way of cryptic order upholding the adjustment proposed by the AO and disallowing the brought forward losses. For the sake of ready reference, paragraph no.6 of the order is reproduced below:-
"6. Assessee has furnished detailed submission in support of grounds of objections. However, after going through the order of Assessing Officer, submission of the assessee and material available on record, we are of the opinion that the TP adjustment made by the TPO is based on correct appreciation of facts and law and has been made after affording reasonable opportunity to the assessee. As regards the disallowance of brought forward losses, we do not find any infirmity in the order of the AO."
3. The assessee has taken up a preliminary objection that the AO framed an order in the name of non-existing company, Adobe Software India Private Limited, which merged with Adobe Systems India Private Limited on account of the order of Hon'ble High Court dated 6.9.2007, under which the merger took place with effect from 01.04.2006. Therefore, the company as assessed ceased to exist on 01.04.2006. The assessment order was passed on 12.07.2010, much after this date of 8 ITA No. 4061(Del)/2010 merger. It was submitted that all facts relating to merger are on record and, therefore, the ground may be admitted as it raises merely a pure question of law. For the admission of the ground, reliance has been placed on the decision of Hon'ble Supreme Court in the case of National Thermal Power Corporation Ltd. Vs. CIT (1998) 229 ITR 383. The ld. DR objected to the admission of the ground and it was mentioned that the DRP has mentioned the name Adobe Software India Private. Limited (Now amalgamated with Adobe Systems India Private Limited). Therefore, mentioning the name of Adobe Systems India Private Limited in the assessment order is merely a typographical error. 3.1 We have considered the facts of the case. We find that the facts regarding the ground are available on the file and the issue is purely an issue of law. Therefore, additional ground no. 2 is admitted, which is sufficient to deal with the controversy raised in both the grounds.
4. After considering the grounds raised initially and in additional grounds, two main questions remain for decision, whether on the facts and in the circumstances of the case, -(i) the order of assessment is bad in law as it has been framed on a non-existing entity; (ii) the AO was 9 ITA No. 4061(Del)/2010 right in making adjustment of ` 3,00,45,367/- on account of transfer pricing adjustment?
4.1 It is an admitted position before us that the additional ground, as admitted above, was not agitated before the DRP. It is also a fact that the DRP has used the correct name of the assessee. The case of the ld. counsel is that the order of the AO is bad in law as it has been framed on a non-existing company. As against the aforesaid, the case of the ld. DR is that it is merely an irregularity, which is curable having regard to the provision contained in section 292B of the Act. We have considered the submissions from both the sides. We find that the mater has neither been agitated nor decided by the DRP. Therefore, the appellate process will be short circuited if the matter is decided for the first time by us. Accordingly, the matter is restored to the file of the DRP to hear the assessee in the matter and decide it as per law.
5. In so far as addition on merits is concerned, we have already reproduced the operative portion of the order of the DRP u/s 144C of the Act. The order does not disclose the facts of the case, contentions raised by the assessee and the process of decision by which it has been held that 10 ITA No. 4061(Del)/2010 TP adjustments have been correctly made. Therefore, it can be said that the order has been passed without application of mind and accordingly it does not meet the requirement of principle of natural justice. Therefore, we think it fit to restore this matter also to the file of the DRP for hearing the assessee again and passing a speaking order as per law.
6. In the result, the appeal is treated as allowed for statistical purposes. This order was pronounced in the open court on 27th December, 2010.
Sd/- sd/- (C.L. Sethi) (K.G.Bansal) Judicial Member Accountant Member Date of order: 27th December, 2010. SP Satia Copy of the order forwarded to:- Adobe Systems India Private Ltd.,Noida. Addl. CIT, Noida Range, Noida. DRP, New Delhi. CIT The DR, ITAT, New Delhi. Assistant Registrar.