Income Tax Appellate Tribunal - Delhi
Actis Advisers Private Limited, New ... vs Assessee on 30 August, 2010
I.T.A. No. /Del/
1/9
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'A' NEW DELHI)
BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER
AND
SHRI A.K. GARODIA, ACCOUNTANT MEMBER
I.T.A. No.4654 /Del/2010
Assessment year : 2006-07
ACTIS Advisers Pvt. Ltd., DCIT,
MIRA, the Corporate Suites, Circle-1(1),
Block D, GF, 1&2, Ishwar Nagar, New Delhi.
New Delhi. V.
(Appellant) (Respondent)
PAN /GIR/No.AAACC
/GIR/No.AAACC-
AAACC-5281-
5281-G
Appellant by : S/Shri Rahul Kishan &
Amit Jugia, C.As. &
Ashutosh Rustogi, Advocate
Respondent by : Shri Ashok Pandey, CIT-DR.
ORDER
PER A.K. GARODIA, AM:
This is an assessee's appeal which is directed against the order of Dispute Resolution Panel (DRP), New Delhi dated 30.8.2010 passed u/s 144C of the Income Tax Act, 1961.
2. The grounds raised by the assessee are as under:-
That on the facts and in the circumstances of the case and in law:
. I.T.A. No.310308/Del/ 2/9
1. The assessment order passed by the Ld Assessing Officer pursuant to the directions of the Ld DRP is bad in law and void ab initio.
2. The reference made by the Ld Assessing Officer suffers from jurisdictional error as the ld Assessing Officer has not recorded any reasons based on which he reached the conclusion that it was necessary or expedient to refer the matter to the Additional CIT, Transfer Pricing (TP) for computation of the arm's length price as is required u/s 92CA(1) of the Act.
3. The Ld DRP and the Ld Assessing Officer erred both on facts and in law in confirming the addition of `.3,71,89,793/- to the income of the appellant proposed by the Ld TPO by holding that its international transactions do not satisfy the arm's length principle envisaged under the Act. In doing so, the Ld DRP and the Ld Assessing Officer has grossly erred in agreeing with and upholding the Ld TPO's action of.
3.1. not appreciating that none of the conditions set out in section 92C(3) of the Act are satisfied in the present case. 3.2. disregarding the ALP, as determined by the appellant in the TP documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Rules.
3.3. disregarding multiple year/prior years data as used by the appellant in the TP documentation and holding that5 current year (i.e. FY 2005-06) data for comparable companies should be used despite the fact that the same was not necessarily available to the appellant at the time of preparing its TP documentation, and in doing so have grossly erred in;
. I.T.A. No.310308/Del/ 3/9 3.3.1. interpreting the requirement of cotemporaneous data in the rules to necessarily imply current/single year i.e. (FY 2005-06) data; and 3.3.2. holding that at the time of creating maintaining the TP documentation, the assessee could have procured current/single year data (i.e. FY 2005-06) data from sources other than the electronic databases, when in fact practically no such other sources were available in case of most companies.
3.4. resorting to arbitrary rejection of low-profit/loss making companies based on erroneous and inconsistent reasons; 3.5. including high profit making comp0anies in the final comparables set for bench marking a low risk captive unit such as the appellant (disregarding judicial pronouncements on the issue), thus demonstrating an intention to arrive at a pre-formulated opinion without complete and adequate application of mind with the single minded intention of making an addition to the returned income of the appellant.
3.6. including in the final set of comparable certain companies that are not comparable to the appellant in terms of functions performed, assets employed and the risks assumed.
3.7. not including in the first set of comparable certain companies which are comparable to the appellant in terms of functions performed assets employed and the risk assumed.
3.8. violating the principles of natural justice by not including in the final set of comparable, additional companies identified by the appellant (based on ld TPO's fresh search . I.T.A. No.310308/Del/ 4/9 methodology) without providing the appellant a reasonable opportunity of being heard.
3.9. denying a working capital adjustment to the operating profit margins of the comparables.
3.10. violating the principles of natural justice by not sharing with the appellant (despite having adequate time at their disposal to do so), the concerns/issues in regard to the alleged/purported short comings/deficiencies in the appellant's claim for a working capital adjustment and thereby denying the appellant a reasonable opportunity to study/examine the same and provide its comments/objections thereto.
3.11. ignoring the business/commercial reality that since the appellant is remunerated on an arm's length cost plus basis i.e. it is compensated for all its costs plus a pre- agreed mark up, the appellant undertakes minimal business risks as against comparable companies that are full fledged risk taking entrepreneurs and by not allowing a risk adjustment to the appellant on account of this fact. 3.12. violating the principles of natural justice by not sharing with the appellant despite having adequate time at their disposal to do so), the concerns/issues in regard to the alleged/purported shortcomings/deficiencies in the appellant's claim for a risk adjustment and thereby denying the appellant a reasonable opportunity to study/examine the same and provided its comments/objections thereto.
3.13. denying the benefit of (+/-) 5 % as per proviso to section 92C(2) of the Act available to the appellant. 3.14. disregarding judicial pronouncements in India in undertaking the TP adjustment; and . I.T.A. No.310308/Del/ 5/9
4. the Ld Assessing Officer has grossly erred in initiating penalty u/s 271(1)( c) of the Act mechanically and without recording any satisfaction for its initiation.
The above grounds are without prejudice to each other.
3. Brief facts of the case are that the draft assessment order was passed by the Assessing Officer u/s 144C/143(3) of the Income Tax Act, 1961. Therefore, the assessee filed objections between DRP has passed directions u/s 144C on 30.8.2010 against which the assessee is in appeal before us. Various factual and legal arguments were raised by the assessee before DRP as per Annexure-3 to Form No.35A. This Annexure-3 runs into 33 pges as available on record but there is no finding given by the DRP regarding these arguments raised by the assessee before it. Now, the assessee is in further appeal before us.
4. At the very outset, it was submitted by the Ld AR of the assessee that DRP has not at all considered the assessee's arguments and passed a very cryptic and non speaking order and therefore, this order of DRP is not sustainable. It is also submitted that these arguments of the assessee are running into 33 pages but the same were brushed aside by DRP without any comment or finding with regard to these arguments. He also submitted a copy of the Tribunal decision in the case of Gap International Sourcing India Pvt. Ltd. v. DCIT in I.T.A. No.4073/Del/2010 dated 10.12.2010 as per which, the matter was restored back to the file of the DRP for fresh decision and for passing a proper and speaking direction u/s 144C of the Income Tax Act, 1961. He also submitted a copy of the judgment of Hon'ble Delhi High Court rendered in the case of Vodafone Essar Ltd. v. DRP dated 2.12.2010 as reported in 2010-TII-22-HC-DEL-INTL and submitted that in that case also, it was held by the Hon'ble Delhi High Court that it is obligatory on . I.T.A. No.310308/Del/ 6/9 the part of quasi judicial authority to ascribe cogent and germane reasons as the same is the heart and soul of the matter and further, the same also facilitates appreciation when the order is called in question before the superior forum.
5. As against this, Ld DR of the revenue supported the impugned order of DRP.
6. We have heard the rival submissions and have gone through the order of Assessing Officer as well as the order of DRP. Before examining the facts of the present case, we examine the Tribunal decision rendered in the case of Gap International Sourcing India Pvt. Ltd. (supra). In that case, the draft order of the Assessing Officer was dated 24.9.2009 and DRP passed directions u/s 144C on 30.8.2010. In that case, the Tribunal has reproduced the provisions of sub sections 5 to 13 of section 144C and thereafter, it has been observed by the Tribunal in that case that the directions of the DRP are too laconic to be left un-commented. The Tribunal has considered the judgment of Hon'ble Apex Court rendered in the case of M/s Sahara India (Farms) v. CIT as reported in 300 ITR 403, in which, it was held that even an administrative order has to be consistent with the rules of natural justice. In that case, the Tribunal has restored the matter back to the file of the DRP to consider the issue once again and to pass a proper and speaking direction u/s 144C of the Income Tax Act, 1961. The basis of that order is that the Tribunal was in agreement with the submissions of the Ld AR of the assessee that the assessee's submission has been brushed aside without giving proper consideration by the DRP.
7. Now, we examine the facts of the present case. In the present case also, it is admitted position that various arguments running into . I.T.A. No.310308/Del/ 7/9 33 pages were raised against the addition proposed by the Assessing Officer and in the impugned order, the DRP has made no comments about those arguments the assessee and the matter has been disposed off by way of cryptic and non speaking order. The relevant operative portion of the impugned order of the DRP u/s 144C i.e. para No.2.3 is being reproduced below:-
"The submissions made by the assessee have been considered but the same are not correct. Due process of law has been followed while referring the case by the Assessing Officer to the TPO as per provisions of section 92CA of the Income Tax Act, 1961. In the matter of use of multiple year data/prior year's data it is observed that only the current years data is justified for selecting the comparable, in this issue, the TPO has dealt in detail with the objections of the assessee in the body of the Transfer Pricing order itself. In the matter of working capital adjustment/risk adjustment the issues pointed out by the TPO are correct and there is no substantial force in the argument of the assessee to interfere with the findings of the TPO. In the matter of rejecting the comparables, as taken by the assessee, and selecting the new comparables, only after discussing in detail, the TPO arrived at the conclusion of rejecting/selecting the new comparables. The reasonings given by the TPO are scientific hence the objections raised by the assessee are not tenable. Thus, we find no compelling reasons to interfere with the order of the TPO and the Assessing Officer and hence the same are confirmed. "
8. From the above order of DRP, it is apparent that the same is without considering various arguments raised by the assessee before DRP and hence, we are in agreement with ld AR of the assessee that . I.T.A. No.310308/Del/ 8/9 the assessee's submissions had been brushed aside without giving proper consideration by DRP.
9. Under this factual position as discussed above, we respectfully follow the judgment of Hon'ble Delhi High Court rendered in the case of Vodafone Essar Ltd. (supra) and the Tribunal decision rendered in the case of Gap International Sourcing India Pvt. Ltd. (supra) and restore the entire matter back to the file of DRP to consider the issue again and to pass a proper, speaking and reasoned order u/s 144C of the Income Tax Act, 1961 after considering all arguments of the assessee. Since we are remitting the matter to the files of DRP for passing fresh direction, we do not make any comment about the merits of the case. Needless to say, the assessee should be given adequate opportunity of being heard. We would also like to observe that as per the judgment of Hon'ble Delhi High Court rendered in the case of Vodafone Essar Ltd. (supra), it was held that for a quasi judicial authority, it is obligatory on its part to ascribe cogent and germane reasons as the same is the heart and soul of the matter and further the same also facilitates appreciation when the order is called in question before the superior forum. These observations of Hon'ble Delhi High Court should be kept in mind by DRP and should be followed while disposing of the matter.
10. In the result, the appeal of the assessee stands allowed for statistical purposes.
11. Order pronounced in the open court on 7th January, 2011.
Sd/- Sd/-
(I.P. BANSAL) (A.K. GARODIA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dt. 7 .1.2011.
HMS
. I.T.A. No.310308/Del/
9/9
Copy forwarded to:-
1. The appellant
2. The respondent
3. The CIT
4. The CIT (A)-, New Delhi.
5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi.
True copy.
By Order (ITAT, New Delhi).