Income Tax Appellate Tribunal - Mumbai
Abacus Distribution Systems (India) ... vs Assessee on 21 November, 2013
आयकर अपील य अ धकरण,
धकरण, मुंबई यायपीठ 'के' मुंबई
IN THE INCOME TAX APPELLATE TRIBUNAL"K" BENCH, MUMBAI
ी पी.
पी.एम.
एम. जगताप,
जगताप, लेखा सद य,
य एवं ी अ मत शु ला,
ला, या यक सद य के सम
BEFORE SHRI P.M. JAGTAP, AM AND SHRI AMIT SHUKLA, JM
ITA No. 2199/Mum/2012
Assessment Year-2004-05
Abacus Distribution Systems बनाम/
बनाम Dy. Commissione r of
(India) Pvt. Ltd. Income -tax, Ci rcle 3(1),
Vs.
t h
14 Floor, Urmi Estate, 95 Room No.607
G.K.Marg, Lower Parel West Aaykar Bh avan ,
Mumbai-400020
Mumbai-400013
थायी ले खा सं . / PAN :AAACA4836H
(अपीलाथ /Appellant) .. ( यथ / Respondent)
ITA No.2173/Mum/2012
Assessment Year-2004-05
Dy. Commissione r of Inco me -tax, बनाम/
बनाम Abacus Distribution
Circle 3(1), Vs. Systems (India) Pvt. Ltd.
Room No.607 14 t h Floor, Urmi Estate, 95
Aaykar Bh avan , G.K.Marg, Lower Parel
Mumbai-400020
West
Mumbai-400013
थायी ले खा सं . / PAN : A AACA4836H
(अपीलाथ /Appellant) .. ( यथ / Respondent)
ITA No.2177/Mum/2012
Assessment Year-2005-06
Abacus Distribution Systems बनाम/
बनाम Dy. Commissione r of
(India) Pvt. Ltd. Income -tax, Ci rcle 3(1),
Vs.
t h
14 Floor, Urmi Estate, 95 Room No.607
G.K.Marg, Lower Parel West Aaykar Bh avan ,
Mumbai-400020
Mumbai-400013
थायी ले खा सं . / PAN : A AACA4836H
(अपीलाथ /Appellant) .. ( यथ / Respondent)
ITA No.2174/Mum/2012
Assessment Year-2005-06
Dy. Commissione r of Inco me -tax, बनाम/
बनाम Abacus Distribution Syste ms
Circle 3(1), (India) Pvt. Ltd.
Vs.
Room No.607 14 t h Floor, Urmi Es tate , 95
Aaykar Bh avan , G.K.Marg , Lowe r Pare l We st
Mumbai-400020 Mumbai-400013
थायी ले खा सं . / PAN : A AACA4836H
(अपीलाथ /Appellant) .. ( यथ / Respondent)
2 ITA NO.2199/Mum/2012 & Ors.
Abacus Distribution Systems (India) Pvt. Ltd.
ITA No.8226/Mum/2010
Assessment Year-2006-07
Abacus Distribution Systems बनाम/
बनाम Dy. Commissione r of
(India) Pvt. Ltd. Income -tax, Ci rcle 3(1),
Vs.
14 t h Floor, Urmi Estate, 95 Room No.607
G.K.Marg, Lower Parel West Aaykar Bh avan ,
Mumbai-400020
Mumbai-400013
थायी ले खा सं . / PAN : A AACA4836H
(अपीलाथ /Appellant) .. ( यथ / Respondent)
ITA No.7275/Mum/2012
Assessment Year-2008-09
Abacus Distribution Systems बनाम/
बनाम Dy. Commissione r of
(India) Pvt. Ltd. Vs. Income -tax, Ci rcle 3(1),
t h
14 Floor, Urmi Estate, 95 Room No.607
G.K.Marg, Lower Parel West Aaykar Bh avan ,
Mumbai-400020
Mumbai-400013
थायी ले खा सं . / PAN : A AACA4836H
(अपीलाथ /Appellant) .. ( यथ / Respondent)
अपीलाथ क ओर से / Assessee by : Shri Girish Dave & Shri
Ketan Ved
राज व क ओर से/ Revenue by : Shri Ajit Kumar Jain
सन
ु वाई क तार ख /Date of Hearing : 21-11-2013
घोषणा क तार ख /Date of Pron ouncement : 0 6-12-2013
आदे श / ORDER
ला,, या यक सद य के
अ मत शु ला ारा /
PER AMIT SHUKLA, J.M.
These are bunch of six appeals filed by the assessee as well by the department for various assessment years. Since, common issues are involved therefore, same were heard together and are being disposed of by this consolidated order for the sake of convenience.
ITA No.2199/Mum/2012 and ITA No.2173/Mum/20122. We will first take up ITA No.2199/Mum/2012 and ITA No.2173/Mum/2012 for the assessment year 2004-05, which are cross 3 ITA NO.2199/Mum/2012 & Ors. Abacus Distribution Systems (India) Pvt. Ltd.
appeals filed against order dated 19.01.2012 passed by CIT(A)15, Mumbai for the quantum of assessment passed in section 143(3). In the appeal filed by the assessee, following grounds have raised:-
1. The learned CIT-A erred in restricting the relief to Rs.2,77,19,115/- and confirming the balance transfer pricing adjustment of Rs.2,10,05,539/-
under section 92CA(3) of the Act as proposed by the Transfer Pricing Officer/Assessing Officer, in respect of the international transactions entered into by the Appellant during the year ended 31st March 2004.
2. i) The learned CIT-A erred in rejecting the contention of the Appellant that "Anusha Air Travel Limited" and "Trent Brands Limited" are valid comparable companies to benchmark the international transactions of entered into by the Appellant during the ended 31st March 2004.
ii) The learned CIT-A further erred in rejecting "Trent Brands Limited" as a valid comparable company even when it was accepted as a valid comparable by the Transfer Pricing Officer in the earlier (i.e. AY 2003-04) and the subsequent (i.e. AY 2006-07) assessment years.
iii) The learned CIT-A erred in rejecting "Anusha Air Travel Limited" as a valid comparable company even when it was accepted as a valid comparable by the Transfer Pricing Officer in the earlier assessment year i.e. AY 2003-04.
3. The learned CIT-A erred in rejecting the contention of the Appellant in respect of the use of contemporaneous data in computing the Profit Level Indicator (PLI) (Berry Ratio) of the comparable companies.
4. The learned CIT-A erred in rejecting the contention of the Appellant about use of multiple year data for computing the Profit Level Indicator (PLI) (Berry Ratio) of the comparable companies.
5. Without prejudice to the aforesaid grounds, the learned CIT-A erred in not granting the benefit of the variation/reduction of 5% from the arithmetic mean while determining the arm's length price for the adjustments made to the international transaction of the appellant as provided in the proviso to section 92C(2) of the Act prior to the amendment by the Finance Act (No.2), 2009, effective 1 October 2009.
6. The Assessing Officer be directed to allow depreciation aggregating to Rs.19,22,011 on the block of "Other Assets" comprising of Office 4 ITA NO.2199/Mum/2012 & Ors. Abacus Distribution Systems (India) Pvt. Ltd.
Equipment, Vehicles, Furniture & Electrical Fittings and Leasehold Improvement.
7. The Assessing Officer be directed to determine the unabsorbed depreciation and business loss for set-off in future against the taxable income in future years.
8. Each one of the above grounds is without prejudice to the other.
9. The Appellant craves leave to add to, alter or amend, any of the foregoing grounds of appeal, of and when necessary.
3. The assessee has also raised following as additional ground alongwith petition dated 18.11.2013 which reads as under:-
1. The Assessing Officer has erred in making the addition of Rs.4,90,75,706/- to the total income of the Appellant for the year under consideration, in contravention of the provisions of sub-section(4) of section 92CA of the Income-tax Act, 1961 as it stood at the relevant point of time.
2. The Appellant craves leave to add, alter amend, substitute and/or modify in any manner whatsoever modify all or any of the foregoing ground of appeal at or before the hearing of the appeal.
4. Whereas, in the department's appeal, following ground has been raised:-
1. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in holding that Foreign Exchange Gain of Rs.2,77,19,115/-
be included in computing the operating income of the assessee following the Hon'ble Supreme Court's decision in the case of Woodward Governor India Pvt. Ltd. (312 ITR 251), without appreciating the fact that the decision relied upon is distinguishable from the facts in the assessee's case as the issue decided in the case of Woodward Governor India Pvt. Ltd. was relating to the taxability of foreign exchange receipts and it has got no bearing on whether receipts from part of the operating income of the assessee".
2. "The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the Assessing Officer be restored.
5. At the time of hearing, the ld. Counsel Shree Girish Dave submitted that the additional ground raised by the assessee goes to the very root of the issues involved, in as much as the assessment order which has been passed by the AO, is in violation of sub-section-4 of section 92CA as it 5 ITA NO.2199/Mum/2012 & Ors. Abacus Distribution Systems (India) Pvt. Ltd.
stood at the relevant point of time. Failure to adhere the provisions of section 92CA(4), has rendered the entire assessment order as irregular and is in violation of principles of natural justice. The Ld. Assessing Officer has not given any opportunity of hearing on the transfer pricing adjustment and arm's length price as determined by the TPO, which he was required to do so as per the law u/s 92CA(4) prevailing prior to 01.06.2007. The was required to give an opportunity to the assessee to give explanation with regard to the adjustment made by the TPO as he cannot suo-moto adopt the arms length price as determined by the TPO. The amendment in the provisions of section 92CA(4) to do away with such a requirement was brought in the statute with Finance Act 2007 with effect from 01st June 2007. Here in this case, reference was made to the TPO on 21.09.2005 and therefore earlier provisions of Section 92CA(4) will apply. In support of his contention, the ld. Counsel strongly relied upon the CBDT circular number 3 of 2008 dated 12th March 2008, wherein it has been clarified that the new provision shall be applicable only where the reference to the TPO has been made after 1st June 2007 and TPO's order has not been passed before the said date under sub-section 3 of section 92CA. Prior to the amendment, sub-section-4 required the assessing officer to proceed and compute the income of the assessee having regard to the arm's length price determined under sub-section 3 of section 92CA by the TPO, which means that the AO has to apply his mind and then determine the arm's length price. This also entails that the Assessing Officer has to give opportunity to the assessee to explain the arm's length price so determined by the TPO and not otherwise. It is only after the amendment that TPO's order on determination of arm's length price has become binding on the Assessing Officer. In support of this contention, he strongly relied upon the decision of Hon'ble Delhi High Court in the case of Sony India Pvt. Ltd. vs. CBDT reported in (2006) 157 Taxman 125 (Delhi) and ITAT Mumbai Bench decision in the case of Dy. Director of Income-tax(International Taxation) Mumbai vs. Columbia Tristar films India Ltd. reported in the 6 ITA NO.2199/Mum/2012 & Ors. Abacus Distribution Systems (India) Pvt. Ltd.
(2011) 10 Taxman.com 245(Mumbai). Accordingly, he submitted that the present order passed by the Assessing Officer is in violation of provisions of the law and the entire order has to be set-aside.
6. On this preliminary issue, ld. CIT DR submitted that already effective opportunity of hearing to the assessee has been given by the TPO and also at the level of the CIT(A) and, therefore, there cannot be any grievance to the assessee for not explaining its case. Alternatively, he submitted that the assessment order cannot be termed as illegal but procedural irregularity, which can be cured by setting aside to the file of the AO.
7. We have heard the rival submissions and also perused the relevant material placed on record on the preliminary issue as raised in the additional ground of appeal. In this case, the issue of transfer pricing was referred to the Transfer Pricing Officer u/s 92CA(1) for the computation of arm's length price in relation to the international transaction reported in audit report in Form number 3CEB, on 21.09.2005. In pursuance thereof, the TPO has passed the order u/s 92CA(3) vide order dated 8th December 2006 suggesting the Assessing Officer to make an addition of Rs.5,55,98,494/-on account of upward adjustment in the arm's length price on the international transaction with the AE. The moot question before us is, whether after the receipt of the order passed by the TPO, the AO is required to give further opportunity to the assessee on the ALP determined by the TPO and then compute the total income of the assessee. Sub-section-4 to section 92CA as it stood at the relevant time i.e. prior to 01.06.2007 read as under:-
"(4) On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C having regard to the arm's length Price determined under sub-
section(3) by the Transfer Pricing Officer."
7 ITA NO.2199/Mum/2012 & Ors.Abacus Distribution Systems (India) Pvt. Ltd.
8. Section 92CA read with various sub-sections provides the mechanism for making reference to the TPO for the computation of arm's length price in relation to the international transactions and the various powers of the TPO for the determination of arm's length price. Sub-section 4, provides that on the receipt of the order passed by the TPO, the Assessing Officer has to proceed to compute the total income of the assessee u/s 92C(4) having regard to the ALP so determined by the TPO. The words "shall proceed to compute the total income of the assessee"
entails that the Assessing Officer has to apply his mind at the time of computation of total income having regard to the ALP determined by the TPO. Once the mandate has been given to the Assessing Officer for computing the ALP, it implies the rule of audi-alteram-partem, that is, the Assessing Officer has to give an opportunity to the assessee to object to such determination of ALP after receiving the report/order of the TPO before he finalizes the assessment of the total income. Now with the amendment brought in the statute with effect from 01.06.2007, such a condition has been removed and now the statute provides that the Assessing Officer's computation of the total income shall be in conformity with the ALP determined by the TPO. This inter-alia means that the TPO's order is binding on the AO only after 01.06.2007. This aspect of the matter has been interpreted by the Hon'ble Delhi High Court in the case of Sony India Pvt. Ltd. (Supra), wherein Hon'ble High Court analyzed in the following manner.
19. "There is nothing in Section 92CA itself that requires the AO to first form a considered opinion in the manner indicated in Section 92C(3) before he can make a reference to the TPO. In our view, it is not possible to read such a requirement into Section 92CA(1). However, it will suffice if the AO forms a prima facie opinion that it is necessary and expedient to make such a reference. One possible reason for the absence of such a requirement of formation of a prior considered opinion by the AO is that the TPO is expected to perform the same exercise as envisaged under Section 92C(1) to (3) while determining the ALP under Section 92CA(3). The latter part of Section 92CA(3) unambiguously states that the AO shall "by an order in writing, 8 ITA NO.2199/Mum/2012 & Ors. Abacus Distribution Systems (India) Pvt. Ltd.
determine the arm's length price in relation to the international transaction in accordance with Sub-section (3) of the Section 92C." It will be pointless to have a duplication of this exercise at two stages one after the other. On the other hand, the scheme is that after the TPO determines the ALP the matter revives before the ALP at the Section 92C(4) stage where, in terms of Section 92CA(4) the AO will compute the total income "having regard to" the ALP determined by the TPO.
20. Two aspects require to be taken note of in this context. The AO will necessarily have to give an opportunity to the assessee after receiving the report of the TPO and before he finalises the assessment computing the total income. Secondly, the provisions do not mandate that the AO is bound to accept the ALP as determined by the TPO. And for good reason because the AO has himself not made up his mind at the stage about the ALP. He has, in a sense, only 'outsourced' this exercise to the TPO. He can always be persuaded by the assessee at that stage to reject the TPO's Report and proceed to still determine the ALP himself. It must be recalled that it is the AO who is the authority to finalise the assessment and that power cannot be usurped, as it were, by the TPO or any other authority contrary to the scheme of the Act. If on the other hand one were to interpret the provisions to require the AO to first form a considered opinion on the ALP before referring the matter to the TPO, then the AO will thereafter have no option but accept the report of the TPO and to that extent the AO's final say on the ALP while computing the total income gets diluted. By preserving the power of the AO to determine the ALP even after the determination by the TPO, full effect can be given to the words "having regard to" occurring in both Section 92C(4) and 92CA(4)".
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX X
23. In view of the settled legal position, we are of the view that the expression "having regard to" in Section 92C(4) and 92CA(4) enables the AO to consider not only the report of the TPO but any other material that may be placed before him by the assessee to arrive at a different conclusion. This also strengthens the position that the report of the TPO is not binding on the AO.
24. This interpretation does not prejudice the assessed because in effect the assessee gets two opportunities to demonstrate that the price declared by it requires acceptance. The first is before the TPO in terms of Section 92CA(3) and the second before the AO under Section 92C(4) after the receipt of the report of the TPO. Any possible prejudice is negatived by the principles of natural justice that are written into the provisions in large measure. Moreover, a specialized determination of the ALP by an experienced quasi-judicial authority exercising the function of the TPO 9 ITA NO.2199/Mum/2012 & Ors. Abacus Distribution Systems (India) Pvt. Ltd.
can only minimize the possibility of the AO acting arbitrarily. At the same time the TPO is not the final authority on the issue.
25. The salient points emerging from the above discussion may be recapitulated thus:
(a) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx.
(b) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx.
(c) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
(d) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
(e)The AO is not bound to accept the ALP as determined by the TPO. He can always be persuaded by the assessee at that stage to reject the TPO's Report and proceed to still determine the ALP himself. This is how the expression "having regard to"
occurring in both Sections 92C(4) and 92CA(4) can be given full effect.
(f)This interpretation does not prejudice the assessee because in effect the assessee gets two opportunities to demonstrate that the ALP declared by it requires acceptance. The first is before the TPO in terms of Section 92CA(3) and the second before the AO under Section 92C(4).
9. Thus, from the above observations and the interpretation by the Hon'ble Delhi High Court, It is absolutely clear that the Assessing Officer is not bound to accept the ALP as determined by the TPO but has to determine the ALP, only after giving an opportunity of hearing to the assessee. In this case, admittedly no such opportunity has been given in terms of sub-section 4 of section 92C read with section 92CA. Accordingly, we are of the opinion that this matter needs to be restored back to the stage of the Assessing Officer, as the irregularity has crept in from this stage by denying the opportunity to the assessee to object to the ALP as determined by the TPO. Now the Assessing Officer will determine the computation of income having regard to the ALP after giving due and effective opportunity of hearing to the assessee. In the result the entire transfer pricing adjustment is restored back to the file of the AO for fresh adjudication.
10 ITA NO.2199/Mum/2012 & Ors.Abacus Distribution Systems (India) Pvt. Ltd.
10. Since, the entire transfer pricing adjustment has been set-aside to the AO, ground no.1 to 5 are also set-aside to the file of the AO for fresh determination of the ALP.
11. Ground no.6 has not been pressed therefore, the same is being dismissed as not pressed.
12. Regarding ground no.7, it has been submitted before us that assessee has filed a petition for rectification u/s 154, which has not been disposed of. Accordingly, we direct the AO to deal and dispose off the assessee's said petition in accordance with the provisions of law. Ground no.8 and 9 are general, hence no adjudication is required.
13. In the department's appeal, the only issue involved is with regard to the addition on account of transfer pricing adjustment. Since, the entire matter of transfer pricing adjustment has been set-aside to the file of the AO, therefore, the issue raised in the department's appeal is also set-aside to the file of the AO.
14. In the result, assessee's appeal as well as department's appeal is treated as allowed for statistical purpose.
ITA No.2177/Mum/2012 and ITA No.2174/Mum/201215. Now we take up cross appeals for the assessment year 2005-06 filed by the assessee being ITA No.2177/Mum/2012 and by the department being ITA No.2174/Mum/2012 against the impugned order dated 02.01.2012 passed by CIT(A)-15 for the quantum of assessment passed u/s 143(3).
16. In the grounds of appeal filed by the assessee, the only issue raised is with regard to the transfer pricing adjustment of Rs.12,08,15,268/-as done by the TPO in respect of international transactions entered by the 11 ITA NO.2199/Mum/2012 & Ors. Abacus Distribution Systems (India) Pvt. Ltd.
assessee with its AE. Apart from that the assessee has also raised additional ground of appeal which reads as under:-
1. The Transfer Pricing Officer has erred in passing the Order dated 31 October 2008 passed u/s. 92CA(3) of the Income-tax Act, 1961 without any application of mind whatsoever.
2. The Appellant craves leave to add, alter, amend, substitute and/or modify in any manner whatsoever modify all or any of the foregoing grounds of appeal at or before the hearing of the appeal.
17. Whereas, in the department's appeal, following grounds have been raised:-
1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the benefit of +/- 5% be allowed to the assessee as per the proviso to Section 92C(2) of the Act, without appreciating the fact that the said proviso will apply only when more than one price is determined by the most appropriate method and where the transaction has takenplace within the 5% of the price so computed, whereas in the case of the assessee only one price has been determined by the assessee and the actual price at which the transaction was under taken is beyond 5% margin, as such, the said proviso will not apply in the case of the assessee".
2. "The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the Assessing Officer be restored".
18. The ld. Counsel, Shri Girish Dave submitted that in the additional ground the assessee has raised a very important contention that the order passed by the Transfer Pricing Officer u/s 92CA(3) is without any application of mind because as the TPO has verbatim copied the order of the TPO for the assessment year 2004-05 passed u/s 92CA(3). To highlight this point, that the TPO has mechanically completed the proceedings in this year, he submitted a comparison chart of the order passed by the TPO for the assessment year 2004-05 and for the assessment year 2005-06 and for that he submitted that except for the variation of figures, there is no other changes and even the assessee's explanation and various documents filed for the assessment year 2005-06 has not been considered at all. The Ld. TPO has duplicated the order in such a manner that he has even gone to the extent of taking the figure of foreign exchange gain in this order which was not an income in this year and which was also not a matter of 12 ITA NO.2199/Mum/2012 & Ors. Abacus Distribution Systems (India) Pvt. Ltd.
consideration. Thus, the entire order of the TPO is vitiated on account of non-application of mind. He further submitted that even the CIT(A) has ignored this issue and the said objection of the assessee has not been considered at all. This is also reflected from the fact that foreign exchange gain issue has been considered by him which was not there in the assessment year 2005-06. Thus, the entire order of the CIT(A) as well as TPO's needs to be set-aside.
19. On the other hand, the Ld. CIT DR, Shri Ajeet Jain submitted that even though the TPO has copied the order for the A.Y.2004-05, however it cannot be said that there is no application of mind as the TPO has looked into the figures which were pertaining to this year and since the similar matter and issues were involve in this year also, so he has passed the similar order. In any case and without prejudice, he submitted that instead of canceling the order, the matter should be remanded back to the file of the TPO to pass a fresh order.
20. We have carefully considered the rival submissions and also perused the relevant order of the TPO as well as the CIT(A). From the perusal of the TPO's order dated 31.10.2008, it is observed that the TPO in fact has duplicated the same order as passed by the TPO vide order dated 8th December 2006 u/s. 92CA(3). Except for the variation in the figures of A.Y.2005-06, there is no difference at all as pointed out by the ld. Counsel. It is also noted that the TPO has even taken into consideration the figure of foreign exchange gain, which income was no there in the A.Y.2005-06. The assessee's explanations for the A.Y. 2005-06 and all its objections and documents have not been considered at all, which were specific to the issues involved in A.Y.2005-06. This shows that the ld. TPO has passed the order without application of mind, which he is required to do so under the provisions of law and equity. Such an order shows an unprecedented bias and pre-determined mind without going into the merits of the case. We are of the opinion that such an order passed by the TPO and confirmed 13 ITA NO.2199/Mum/2012 & Ors. Abacus Distribution Systems (India) Pvt. Ltd.
by the ld. CIT(A) cannot stand and the entire matter needs to be remanded back to the file of the TPO/AO for passing fresh order, in accordance with provisions of law and after giving due and effective opportunity of hearing to the assessee and also considering the entire material and evidence including explanation filed before him. Accordingly, the impugned order is set-aside and entire matter is restored back to the file of the AO for fresh adjudication.
21. In the result appeal filed by the assessee is treated is allowed for statistical purpose.
22. The only issue raised in the department's appeal is that the Ld. CIT(A) has erred in law in giving benefit of +/- 5% to the assessee as per the proviso to section 92C(2) on the ALP so determined, as a matter of standard deduction. Since, the entire matter of transfer pricing adjustment has been restored back to the file of the TPO, therefore, this issue is also remanded back to the file of the TPO/AO to follow the amended provisions of law as given in section 92C, as the view taken by the CIT(A) is legally not sustainable. Accordingly, the department's appeal is also treated as allowed for statistical purpose.
23. In the result, appeal of the assessee as well as the department is treated as allowed for statistical purpose.
ITA No.8826/Mum/201024. Now we take up appeal for A.Y. 2006-07 in ITA No.8826/Mum/2010 filed by the assessee, against final assessment order dated 09.09.2010 passed by the Dy. Commissioner of Income-tax-3(1), Mumbai, (hereinafter called as AO) in pursuance of direction given by the dispute resolution panel (hereinafter called as DRP).
25. In ground no.1, the assessee has raised a legal issue challenging the validity of the assessment order passed by the AO on the ground that 14 ITA NO.2199/Mum/2012 & Ors. Abacus Distribution Systems (India) Pvt. Ltd.
notice issued u/s. 143(2) is barred by limitation. The relevant grounds reads as under:-
"The learned Assessing Officer (AO) under the instruction of Dispute Resolution Panel (DRP) has erred in lawn and on the facts of the case in passing the order under section 143(3) r.w.s. 144C(13) without appreciating the fact that the notice issued by him under section 143(2) is time barred, bad in law and not enforceable under the Act".
26. Besides this various grounds has been raised on merits of the additions made by the Assessing Officer in the assessment order.
27. The relevant facts apropos, the first ground of appeal are that assessee is a company which had filed its return of income on 20.11.2006 for the A.Y. 2006-07, declaring "nil" income after claiming set off of brought forward losses to the tune of Rs.2,28,40,520/-. Thereafter, the assessee's case was selected for scrutiny and statutory notice u/s 143(2) dated 28.11.2007 was issued. As per the 2nd proviso to section 143(2), the notice u/s 143(2) has to be served upon the assessee, before the expiry of the 12 months from the end of the month in which return is furnished, which here in this case was 30th November 2007. The ld. Counsel Shri Girish Dave appearing on behalf of the assessee submitted that the notice dated 28th November 2007, could not be served upon the assessee within the statutory period of 12 months from the end of the month in which the returned is furnished, which was 30th November 2007. He submitted that the said notice dated 28.11.2007 was sent on the old address of the assessee and admittedly the notice could not be served upon the assessee. It was only the second notice dated 11.12.2007 issued u/s 143(2) was received by the appellant which was sent on the new address. Thus the 15 ITA NO.2199/Mum/2012 & Ors. Abacus Distribution Systems (India) Pvt. Ltd.
2nd notice which was served upon the assessee was clearly barred by limitation as per the provisions of the law. He also brought on record before us that the assessee, as early as on 23.11.2006, has filed a letter dated 22.11.2006 before the AO, intimating the change of address. Despite the availability of correct address on record, the department has sent the notice to the old address from where the assessee has completely wound up its office a year ago. In support of this contention, he has filed a sequence of events alongwith the relevant documents and letters which are available on the record. He submitted that before the Assessing Officer, the assessee has raised a specific objection at the very first instance, wherein it was submitted that the notice u/s.143(2) has not been served upon the assessee within the statutory time and hence is barred by limitation. Thereafter, the AO has not rebutted the assessee's objection but has falsely stated that the notice u/s143(2) dated 28.11.2007 has been served upon the assessee. This objection was also raised before the DRP, however, the DRP after taking note of these facts, has held that AO has issued the notice on proper address known to him at the time of issuance of notice which was the same as mentioned in the return of income and further the notice was also dispatched through speed post before the limitation period. The Ld. Counsel submitted that such an observation and finding is completely divorced from the material on record and hence the entire assessment order should be quashed.
28. Before us, the ld.CIT DR Shri Ajit Jain produce the assessment records, from which records, he submitted that in the return of income, the address of the assessee has been mentioned "81-83A Mittal Court, 8th Floor, 'A' bing Nariman Point, Mumbai-400021. On the said address itself, the notice u/s 143(2) dated 28.11.2007 has been issued to the assessee by the AO. The said notice was sent through speed post on the same address. In support of the same, he filed a photo-copy of the said notice alongwith the front side and back side of the envelop through which the 16 ITA NO.2199/Mum/2012 & Ors. Abacus Distribution Systems (India) Pvt. Ltd.
said notice was sent. He also submitted that there is report by Income-tax Inspector dated 29.11.2007 stating that ITI visited the office premises of the assessee i.e. 81-83 A Mittal Court, 8th Floor, 'A' wing Nariman point, Mumbai 400021, for serving the notice u/s 143(2). However, on enquiry it revealed that no such company was functioning in the name of the assessee and on enquiry also nobody could help in giving the whereabout of the assessee. Hence, the notice u/s 143(2) could not be served. Thereafter, the Assessing Officer on 11.12.2007 issued a fresh notice u/s 143(2) on the changed address which was served upon the assessee on 12.12.2007. A photo-copy of the said notice has also been filed before us. He further submitted that in the record, there is a photo-copy of letter dated 22.11.2006 addressed to the Asst. Commissioner of Income-tax, range-3(1), intimating the change of postal address of the assessee - company. He also pointed out that the Assessing Officer has also tried to serve the notice through the affixture. Thus, the Assessing Officer has made all the possible efforts to serve the notice u/s 143(2) and in fact, notice was actually served upon the assessee on 11.12.2007. Once the notice has been served upon the assessee the Assessing Officer acquires the jurisdiction to scrutinize return and to pass the assessment order as per the facts and material placed on record. There could not be any grievance to the assessee as all the opportunity of hearing has been provided to the assessee to submit the evidence in support of the claim made in the return of income and it was only after considering all the materials and evidences placed by the assessee, the assessment order has been passed. Even if the notice could not be served within the period of twelve months, despite all the possible efforts by the Assessing Officer, then also it is a procedural irregularity which can be cured either by setting-aside the assessment to the file of the AO or to decide the matter after hearing the assessee on merits.
17 ITA NO.2199/Mum/2012 & Ors.Abacus Distribution Systems (India) Pvt. Ltd.
29. By way of rejoinder the ld. Counsel Shri Girish Dave, submitted that from the records it is clear that the notice u/s 143(2) has not been served upon the assessee at the correct address which was duly intimated to the department just after two days of the filing of return of income. Regarding the intimation to the AO, which is available in the records in the form of photo-copy, he submitted that there is clear-cut seal of the department acknowledging the said intimation letter that it has been received on 23rd November 2006. Once the AO was duly intimated about the change of the address, then the Assessing Officer was required to serve the notice within the statutory period provided in the section 143(2), at the correct address which has not been fulfilled. Lastly, he submitted that law has now been well settled by various High Courts and the Supreme Court, that the service of notice u/s 143(2) upon the assessee is mandatory and if such a condition of service of notice is not fulfilled, then the entire assessment order passed is void-ab-initio. He also relied upon the certain judicial pronouncement in this regard.
30. We have carefully considered the rival submissions qua the issue raised in ground no.1 and also perused the relevant material placed on record before us. From such records, the following sequence of events is being drawn by us to appreciate the correct facts on this issue:-
Sr. Date Events
no.
1. 20th November 2006 Return of income was filed by the assessee
for the assessment year 2006-07 wherein
the address mentioned was 81-83-A,
Mittal Court, 8th Floor, "A" Wing,
Nariman Point, Mumbai 400 021
18 ITA NO.2199/Mum/2012 & Ors.
Abacus Distribution Systems (India) Pvt. Ltd.
2. 22nd November 2006 The assessee wrote letter to the ACIT, and 23rd November Range-3(1), Room no.607, Aayakar Bhavan, 2006 101, M.K. Road, Mumbai, intimating that the address, w.e.f. 1st November 2006, has been changed to Ruby House, First Floor, J.K. Savant Marg, Dadar (W), Mumbai 400
028. This letter was filed on 23rd November 2006 as per the seal of the DCIT, Circle-3(1), Mumbai.
3. 28th November 2007 Notice u/s 143(2) was issued by the DCIT, Circle-3(1), Mumbai (A.O) address to the "Principal Officer, Abacus Distribution Systems Co. Pvt. Ltd., 81-83-A, Mittal Court, 8th Floor, "A" Wing, Nariman Point, Mumbai 400 021".
4. 29th November 2007 Report of Income Tax Inspector that he visited the office premises of the assessee at "81-83-A, Mittal Court, 8th Floor, "A" Wing, Nariman Point, Mumbai 400 021" to serve the notice under section 143(2), however, on enquiry, it was found that no such company is in existence there in the name of the assessee.
5. 30th November 2007 The last date for date for service of notice u/s 143(2) in case of the assessee as per the second proviso to section 143(2) which envisages that no notice shall be served on the assessee after the expiry of 12 months from the end of the month in which the return of income is furnished.
19 ITA NO.2199/Mum/2012 & Ors.Abacus Distribution Systems (India) Pvt. Ltd.
6. 30th November 2007 The date mentioned as per the seal of post office for sending the notice through speed post at the address mentioned in the notice u/s 143(2). The said speed post returned unserved as the assessee was not found on the address and the said post came back on 1st December 2007.
7. 5th December 2007 As per the records submitted by the D.R., the notice was also served through affixture on the old address, however, there is no report how the procedure has been followed as per the requirements of the CPC Order-V.
8. 11th December 2007 Second notice was sent by the A.O. to the assessee on the new address i.e., "Ruby House, First Floor, J.K. Savant Marg, Dadar (W), Mumbai 400 028."
9. 12th December 2007 The aforesaid notice dated 11th December 2007, was served upon the assessee fixing the date of hearing for 17th December 2007.
10. 13th December 2007 The assessee wrote letter to the A.O. raising objection that notice u/s 143(2) has not been served within the statutory time limit of 12 months from the end of the month in which the return of income is furnished, which had expired on 30th November 2007 and the notice dated 11th December 2007 is barred by limitation and no assessment proceedings can be initiated.
20 ITA NO.2199/Mum/2012 & Ors.Abacus Distribution Systems (India) Pvt. Ltd.
11. 26th November 2009 Draft assessment order was passed u/s 144C by the A.O. wherein the assessee's objections were not taken into account.
12. July 2010 Directions of the DRP wherein the assessee's objections have been rejected after observing as under:-
"Regarding the validity of assessment proceedings, the DRP perused the assessee records and it has been noticed that the notice u/s 143(2) dated 28th November 2007, has been issued and sent through speed post to the assessee on the address mentioned in the return of income. However, the same has been returned back as "unserved". Then the A.O. has issued a fresh notice after ascertaining the changed address of the assessee, which according to the assessee was intimated.
However, the original
intimation of the assessee is
not on record and only photo
copy of the intimation of the
change of address in placed on
record. It appears, once the
original notice was returned
back by the postal authorities,
the A.O. made efforts to trace
the address of the assessee
and obtained the photo copy of
the letter claimed to be filed by
the assessee intimating the
change of address. Thus, the
DRP is of the considered view,
that the A.O has issued the
notice on proper address
known to the A.O. at the time
of issue of notice which was
the same as mentioned in the
return of income and it has
21 ITA NO.2199/Mum/2012 & Ors.
Abacus Distribution Systems (India) Pvt. Ltd.
been dispatched through
speed post before the limitation
period. The assessee's
objection that the notice u/s
143(2) has not been issued
within the limitation period
cannot be accepted, and
accordingly, objection raised
by the assessee is rejected."
31. From the above sequence of events, the following inferences can be drawn.
i) The assessee, as early as on 23rd November 2006, has intimated to the Assessing Officer about the change of official address and such an intimation has also been acknowledged by the office of the Assessing Officer;
ii) Despite intimation of the change of address, the Assessing Officer had sent the notice dated 28th November 2007, on the old address from where the assessee had admittedly left a year ago;
iii) The said notice dated 28th November 2007 could not be served upon the assessee within the statutory time limit as provided under section 143(2) for scrutinizing the assessee's return of income and initiating the assessment proceedings;
and
iv) The second notice dated 11th December 2007, which has been served upon the assessee in accordance with the law is 22 ITA NO.2199/Mum/2012 & Ors. Abacus Distribution Systems (India) Pvt. Ltd.
clearly barred by the limitation in view of the proviso to section 143(2).
The provisions of section 143(2) clearly envisages that -
"Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer shall:-
(i) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
(ii) Notwithstanding anything contained in clause (i), if he considers
it necessary or expedient to ensoure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produce, any evidence on which the assessee may rely in support of the return:
"Provided that no notice under clause (ii) shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished."
33. On a bare perusal of the aforesaid section, it can be seen that where a return of income has been furnished by the assessee, it is mandatory for the Assessing Officer to serve a notice under this sub-section if he considers necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner. In other words, if he wants to scrutinize the return of income filed by the assessee, a notice has to be served upon the assessee requiring him to substantiate its return of income after producing relevant evidence or records. If such a service is not issued and 23 ITA NO.2199/Mum/2012 & Ors. Abacus Distribution Systems (India) Pvt. Ltd.
served, then the Assessing Officer cannot scrutinize the return of income filed by the assessee. This mandatory provision also gets fortified by the 'proviso' which put further fetter on the Assessing Officer to serve the notice within the stipulated period. The word "shall" makes it mandatory for the Assessing Officer to serve the notice within the period of 12 months form the end of the month in which the return of income is furnished. Otherwise, the law presumes that the return of income has to be accepted as such. The said proposition has also been endorsed and ratified by catena of decisions rendered by the various High Courts and the Hon'ble Supreme Court that the issuance and service notice under section 143(2), within the time period prescribed in the second proviso to section 143(2) is mandatory and not merely procedural formality. If such requirement of service of notice under section 143(2) within the time limit has not been fulfilled then the consequent assessment order passed by the Assessing Officer is null and void and no addition can be sustained. Few of such decisions are mentioned below:-
i) Vipan Khanna v/s CIT, [2002] 255 ITR 220 (P&H), wherein Their Lordships, after taking note of the Circular No.549 dated 31st October 1989, observed and held as under:-
"Therefore, in a case where a return is filed and is processed under section 143(1) (a) of the Act and no notice under sub- section(2) of section 143 of the Act thereafter served on the assessee within the stipulated period of 12 months the assessment proceedings under section 143 come to an end and the matter becomes final. Thus, although technically no assessment is framed in such a case, yet the proceedings for assessment stand terminated. The Central Board of Direct Taxes vide its Circular No.549, dated October 31, 1989 [1990] 182 ITR(St.) 1, has explained the new procedure of assessment in paras 5.12 and 5.13 as under (page 24):24 ITA NO.2199/Mum/2012 & Ors.
Abacus Distribution Systems (India) Pvt. Ltd.
"5.12 Since, under the provisions of sub-section (1) of the new section 143, an assessment is not to be made now, the provisions of sub-sections (2) and (3) have also been recast and are entirely different from the old provisions. A notice under sub-section (2) which will be issued only in cases picked up for scrutiny, is now issued only to ensure that the assessee has not understated his income or has not computed excessive loss or has not underpaid the tax in any manner while furnishing his return of income. This means that, under the new provisions, in an assessment order passed under section 143(3) in a scrutiny case, neither the income can be assessed at a figure lower than the returned income, nor loss can be assessed at a figure higher than the returned loss, nor a further refund can be given except what was due on the basis of the returned income, and which would have already been allowed under the provisions of section 143(1)(a)(ii).
5.13 A proviso to sub-section (2) provides that a notice under the sub-section can be served on the assessee only during the financial year in which the return is furnished or within six months from the end of the month in which the return is furnished, whichever is later. This means that the Department must serve the said notice on the assessee within this period, if a case is picked up for scrutiny. It follows that if an assessee, after furnishing the return of income does not receive a notice under section 143(2) from the Department within the aforesaid period, he can take it that the return filed by him has become final and no scrutiny proceedings are to be started in respect of that return."
Thus, it is evident that the Board itself concedes that if the assessee after furnishing the return of income does not receive a notice under section 143(2) of the Act within the stipulated period he can take it that the return filed by him has become final and no scrutiny proceedings are to be started in respect of that return.
25 ITA NO.2199/Mum/2012 & Ors.Abacus Distribution Systems (India) Pvt. Ltd.
ii) CIT v/s M. Chillappan, [2005] 281 ITR 444 (Mad.) "In the instant case, admittedly, no notices under s. 143(2) of the Act were served on the assessees within the stipulated period of twelve months and, therefore, the proceedings under s. 143 of the Act come to an end and the matter becomes final. Hence, applying the ratio laid down by the Punjab & Haryana High Court in Vipan Khanna vs. CIT(supra), we are of the view that no substantial question of law arises for our consideration in these appeals."
iii) CIT v/s C. Palaniappan, [2006] 284 ITR 257 (Mad.), wherein Their Lordships observed and held as under :-
"In respect of question No.1, we find that on a similar issue which came up for consideration in CIT v. M. Chellappan [2006] 281 ITR 444, a Division Bench of this court, in which one of us was a party (P.D. Dinakaran J.) applying the ratio laid down by the Punjab and Haryana High Court in Vipan Khanna v. CIT[2002] 255 ITR 220 (P&H), held as follows (page 445):
'...admittedly, no notices under section 143(2) of the Act were served on the assessees within the stipulated period of twelve months and, therefore, the proceedings under section 143 of the Act come to an end and the matter becomes final.' In view of the above, the first question now raised, therefore, stands concluded in favour of the assessee."
iv) CIT v/s Bhan Textiles Pvt. Ltd., [2006] 287 ITR 370 (Del.) "The said proviso leaves no room for debate that the notice must be served on the assessee. In CIT v. Lunar Diamonds Ltd.[2006] 281 ITR 1(Delhi) the Division Bench had rejected the contention that the words "served" and "issued" are synonymous and are interchangeable. The Bench did not have the benefit of the decision of the hon'ble Supreme Court in R.K. Upadhyaya v. Shanabhai P. Patel [1987] 166 ITR 163, which in fact strengthens and fortifies the position that there is a clear distinction between "issuance of notice" and "service of notice". Ms. Bansal's reliance on Tea Consultancy and Plantation Services (India) P. Ltd. v. Union of India [2005] 278 ITR 356 (Delhi) is of no avail since the word that had to be construed by the Division Bench in that case was "made" and not "issued" or "served". We see no reason to adopt an approach different to the one adopted by us in CIT v. Vardhman Estate P. Ltd.[2006] 287 ITR 368 (Delhi) (ITA No.1248 of 2006) decided by us on September 25, 2006."
26 ITA NO.2199/Mum/2012 & Ors.Abacus Distribution Systems (India) Pvt. Ltd.
v) CIT Vs. Eqbal Singh Sindhana, [2007] 162 Taxman 107(Del.) "16. So, from the entire material available on record, we have no hesitation in holding that no notice under section 143(2) of the Act had been served upon the assessee within the prescribed period and, therefore, the assessment made by the Assessing Officer, is invalid."
vi) Dy CIT Vs. Mahi Vally Hotels & Resorts, [2006] 287 ITR 360 (Guj.) "When the provision was first introduced in the statute the Central Board of Direct Taxes issued departmental Circular No.549 dated October 31, 1989(see[1990] 182 ITR (St.)1) and the necessity of the proviso as well as the consequences flowing on failure to issued notice within the limitation have been explained in the following words (page 24):
5.13 A proviso to sub-section(2) provides that a notice under the sub-section can be served on the assessee only during the financial year in which the return is furnished or within six months from the end of the month in which the return is furnished, whichever is later. This means that the Department must serve the said notice on the assessee within this period, if a case is picked up for scrutiny. It follows that if an assessee, after furnishing the return of income does not receive a notice under section 143(2) from the department within the aforesaid period, he can take it that the return filed by him has become final and no scrutiny proceedings are to be started in respect of that return".
(Ref: Central Board of Direct Taxes Circular No.549, dated 31st October, 1989, Chaturvedi and Pithisaria's Income-tax Law, Fifth edition, Vol.3, page 4737 at page 4742).
xxx xxx xxx "It goes without saying that the departmental authorities are bound by the circulars issued by the Central Board of Direct Taxes. In the circumstances, it is not open to the Revenue to contend otherwise. These circulars are explanatory. They give contemporaneous exposition of the legal position. Even otherwise, on a plain reading of the section and the proviso it is more than abundantly clear that the proviso prescribes a mandatory period of limitation in the light of the scheme of assessment wherein the majority of returns are required to be accepted without scrutiny and only certain returns are taken up for scrutiny."
vii) ACIT v/s Hotel Blue Moon, [2010] 321 ITR 362 (SC) "Sec. 158BC provides for enquiry and assessment. After the return is filed, clause (b) of section 158BC provides that the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in section 158BB and "the provisions of section 142, sub-sections (2) 27 ITA NO.2199/Mum/2012 & Ors. Abacus Distribution Systems (India) Pvt. Ltd.
and (3) of section 143, section 144 and section 145 shall, so far as may be, apply". This indicates that this clause enables the Assessing Officer, after the return is filed, to complete the assessment under section 143(2) by following the procedure like issue of notice under section 143(2)/142. This does not provide accepting the return as provided under section 143(1)(a) :
the officer has to complete the assessment under section 143(3) only. If an assessment is to be completed under section 143(3) read with section 158BC, notice under section 143(2) should be issued within one year from the date of filing of the block return. Omission on the part of the assessing authority to issue notice under section 143(2) cannot be a procedural irregularity and is not curable. Therefore, the requirement of notice under section 143(2) cannot be dispensed with."
xxxx xxxx xxxx "This section does not provide for accepting the return as provided under section 143(1)(a). The Assessing Officer has to complete the assessment under section 143(3) only. In case of default in not filing the return or not complying with the notice under section 143(2)/142, the Assessing Officer is authorised to complete the assessment ex-parte under section 144. Clause
(b) of section 158BC by referring to section 143(2) and (3) would appeal to imply that the provisions of section 143(1) are excluded. But section 143(2) itself becomes necessary only where it becomes necessary to check the return, so that where block return conforms to the undisclosed income inferred by the authorities, there is no reason, why the authorities should issue notice under section 143(2). However, if an assessment is to be completed under section 143(3) read with section 158BC, notice under section 143(2) should be issued within one year from the dat4e of filing of block return. Omission on the part of the assessing authority to issue notice under section 143(2) cannot be a procedural irregularity and the same is not curable and, therefore, the requirement of notice under section 143(2) cannot be dispensed with. The other important feature that requires to be noticed is that section 158BC(b) specifically refers to some of the provisions of the Act which require to be followed by the Assessing Officer while completing the block assessments under Chapter XIVB of the Act. This legislation is by incorporation. This section even speaks of sub-sections which are to be followed by the Assessing Officer. Had the intention of the Legislature been to exclude the provisions of Chapter XIV of the Act, the Legislature would have or could have indicate that also. A reading of the provision would clearly indicate, in our opinion, if the Assessing Officer, if for any reason, repudiates the return filed by the assessee in response to notice under section 158BC(a), the Assessing Officer must necessarily issue notice under section 143(2) of the Act within the time prescribed in the proviso to section 143(2) of the Act. Where the Legislature intended to exclude certain provisions from the ambit of section 158BC(b) it has done so specifically.
Thus, when section 158BC(b) specifically refers to applicability of the proviso thereto it cannot be exclude. We may also notice here itself that the clarification given by the Central Board of Direct Taxes in its Circular No.717 dated August 14, 1995, has a binding effect on the Department, but not on the Court. This circular clarifies the requirement of law in respect of service 28 ITA NO.2199/Mum/2012 & Ors. Abacus Distribution Systems (India) Pvt. Ltd.
notice under sub-section (2) of section 143 of the Act. Accordingly, we conclude that even for the purpose of Chapter XIV-B of the Act, for the determination of undisclosed income for a block period under the provisions of section 158BC, the provisions of section 142 and sub-sections (2) and (3) of section 143 are applicable and no assessment could be made without issuing notice under section 143(2) of the Act."
34. In view of the material placed on record and various judicial precedence, we hold that the impugned assessment order passed by the Assessing Officer is void ab initio as the same has been passed without the mandatory requirement of serving the notice under section 143(2) upon the assessee within the time provided in the second proviso. Thus, the entire assessment and consequent additions made by the Assessing Officer is quashed and the ground raised by the assessee is treated as allowed. Since the entire assessment has been quashed, the other grounds of appeal dealing with the merits of the addition have become infructuous.
35. In the result, assessee's appeal is treated as allowed.
36. We now take up assessee's appeal in ITA no.7275/Mum./2012, for the assessment year 2008-09.
37. The main issue involved in ground no.1 and 2 is transfer pricing adjustment of Rs.5,81,72,495 on account of marketing services provided by the assessee to the A.E. and transfer pricing adjustment of Rs.4.40 crores on account of service charges paid to the A.E.
38. The assessee is a subsidiary of Abacus International Pte. Ltd., Singapore, which is engaged in the business of computarised reservation system. This system provides travel information and reservations and also facilitate air booking, hotel, etc., specifically to the Asian region. Insofar as the assessee is concerned, it is engaged in the business of marketing and distribution system of Abacus System in India and also to provide help 29 ITA NO.2199/Mum/2012 & Ors. Abacus Distribution Systems (India) Pvt. Ltd.
desk services and support infrastructure. During the year, the assessee has entered into following international transactions with its A.E. Sr.n Nature of Transaction Value of Method o. Transactions (Rs) used
1. Provision of marketing services. 191,299,288 TNMM Note 2 mentions that company has recorded a sum of Rs. 24,672,486 as marketing service fee pursuant to addendum entered with the holding company on 31st December 2007 for marketing and promotion of Abacus Systems for the year ended 31st March 2008.
2. Availing of interest free ECB loan of INR Rs.113,629,880.
3. Reimbursement of Expenses:
Line Charges 49,61,871
Service Charges 4,40,82,127
Deputation Cost 10,75,863
Other Expenses 32,30,868
39. Before us, the learned Counsel for the assessee, at the out set, submitted that the TPO's order is very cryptic for the reason that the assessee's detail submission and material placed on record, which were made before him have not been considered and from the perusal of the entire order of the TPO, it is not clear as to why the assessee's contentions have been rejected and how the bench marking has been arrived at. The assessee, in its transfer pricing study report has submitted a detail analysis of comparables for bench marking the ALP of various transactions undertaking by the A.E. The assessee has initially included 18 comparables and thereafter shortlisted four comparables after filtration. The TPO, without giving any proper reason or explanation for rejecting the search criteria and the comparables, went on to make adjustment on the basis of margin of his own comparables. The details of these comparables have not been provided at all. It has not been discussed in the order itself. This is evident from the narration given in Para-5 of the TPO's order. On 30 ITA NO.2199/Mum/2012 & Ors. Abacus Distribution Systems (India) Pvt. Ltd.
the other adjustment of Rs.4.40 crores, the TPO's finding and observation are without any proper reasoning and explanation as to why assessee's detail explanation or submissions were not proper or are liable to be rejected. He further submitted that the TPO has missed a very crucial point that in this year due to heavy inconvenience of marketing expenditure, the A.E. has reimbursed more than Rs.24 crores to the assessee. This is evident from addendum to sub-distribution system. This fact alone changes the colour of the transfer pricing issue. He submitted that in the interest of justice, the entire matter should be restored back to the file of the Assessing Officer / TPO so that there should be proper reasoning as to why the bench marking of the margin done and comparables short listed by the assessee cannot be taken as correct and how the margin has been arrived at by the TPO.
40. On the other hand, the learned Departmental Representative submitted that on a perusal of the assessee's record, it is not clear as to how the assessee itself has bench marked its margin vis-a-vis the comparables and how the operating income of the assessee has been arrived at. He submitted that once the assessee itself has not made anything clear then what the TPO has done is absolutely correct. He further submitted that what is the principal agreement between the assessee and its A.E. has not been examined and it is only when this agreement is examined then only when the addendum to sub-distribution agreement can be understood which provides that how the cost have been reappraised or compensation has been paid by the A.E. to the assessee. Alternatively, he also admitted that the entire matter can be restored back to the file of the TPO for fresh adjudication and after considering all the relevant documents and principal agreement.
31 ITA NO.2199/Mum/2012 & Ors.Abacus Distribution Systems (India) Pvt. Ltd.
41. After carefully considering the entire material placed on record and the relevant findings of the TPO, it is observed that the TPO has not examined properly the assessee's contention and submissions made before him with regard to the bench marking of its transaction with the A.E. and determination of ALP. How the comparables selected by the assessee were functionally different and how the TPO has selected his own comparables and bench marked the margin. The case of the learned Counsel before us is that the TPO has not properly appreciated the entire marketing expenditure which has been reimbursed by the A.E. because the assessee had to incur huge expenditure on behalf of the A.E. towards marketing expenditure in this year, which has been compensated. He has heavily relied upon the addendum to sub-distribution agreement dated 31st December 2007. However, the principal agreement has not been filed before us. Even the manner in which the operating income has been shown has not been properly clarified as to whether it forms part of the income or it is a compensation received from the A.E. Looking to the entirety of the facts and circumstances of the case, we are of the opinion that the entire issue of transfer pricing needs to be restored back to the file of the Assessing Officer / TPO for denovo adjudication after taking into consideration the principal agreement and other relevant documents and the assessee's explanation regarding bench marking of the margin vis-a- vis the comparables. The TPO / Assessing Officer will provide due and effective opportunity of hearing to the assessee and thereafter will pass speaking order on merits, afresh. Thus, the ground no.1 and 2 are treated as allowed for statistical purposes.
42. Ground no.3 relates to the disallowance of Rs.1,81,526 on account of AIR information.
32 ITA NO.2199/Mum/2012 & Ors.Abacus Distribution Systems (India) Pvt. Ltd.
43. It has been submitted by the learned Counsel that no such income were received by the assessee either in the year under consideration or any of the preceding or succeeding years. Moreover the details of information have not been provided to the assessee. Thus, this issue also needs to be restored back to the file of the Assessing Officer / TPO so that the assessee should get opportunity to examine this information and make proper submissions. Learned Departmental Representative concurred with the submissions made by the learned Counsel and agreed that the matter can be restored to the file of the Assessing Officer.
44. In view of the above, we hold that the issue of disallowance of Rs.1,81,526 which is based on AIR information is restored back to the file of the Assessing Officer for denovo adjudication after confronting all the material / information to the assessee. The assessee should be given due and effective opportunity to explain its case.
45. In ground no.4, the assessee has challenged the disallowance of set- off of brought forward unabsorbed business loss.
46. On this issue, the learned Counsel submitted that in view of the decision of the Hon'ble Gujarat High Court in General Motors India Pvt. Ltd. v/s DICT, [2013] 354 ITR 244 (Guj.), the matter should be decided as the High Court have discussed the issue of set-off unabsorbed business loss pertaining to the earlier assessment years. This judgment has also been considered by the co-ordinate bench of Tribunal, Mumbai Bench, in Arch Fine Chemicals v/s ACIT, ITA no.2441 & 2445/ Mum./2012, wherein they have reiterated that the amendment in section 32 is applicable from the assessment year 2002-03 and subsequent years and unabsorbed depreciation available in the earlier years will be allowed to be carried forward to the succeeding years and if any unabsorbed depreciation or part thereof could not be set-off till the assessment year 2002-03, then it would be carried forward till the time it is set-off against the profits and 33 ITA NO.2199/Mum/2012 & Ors. Abacus Distribution Systems (India) Pvt. Ltd.
gains of subsequent years. The learned Departmental Representative also agreed that the matter can be restored back for deciding the issue in accordance with law.
47. In view of the submissions made by the parties, we restore this issue back to the file of the Assessing Officer to decide this issue afresh in line with the decision of Hon'ble Gujarat High Court in General Motors India Pvt. Ltd. (supra). We order accordingly. Thus, ground no.4, is treated as allowed for statistical purposes.
48. In ground no.5, the assessee has challenged the non granting of credit of TDS amounting to Rs.21,368.
49. As agreed by both the parties, this issue is restored back to the file of the Assessing Officer with a direction to give credit of the TDS as available in record.
50. In ground no.6, the assessee has challenged levy of interest under section 234D.
51. The learned Counsel for the assessee submitted that the assessee has not received any refund, therefore, there is no question of levy of interest under section 234D.
52. In view of the above contention of the assessee, we direct the Assessing Officer to verify the contention of the assessee and order accordingly.
53. Ground no.7 relates to levy of interest under section 234B.
54. Both the parties agreed before us that this ground is consequential in nature. Accordingly, we direct the Assessing Officer to give consequential effect in accordance with law.
34 ITA NO.2199/Mum/2012 & Ors.Abacus Distribution Systems (India) Pvt. Ltd.
55. In the result, assessee's appeal is treated as allowed for statistical purposes.
56. In the result, appeal of the assessee for the assessment year 2004- 05 is allowed for statistical purpose and department's appeal is also allowed for statistical purpose. The appeal of the assessee for the assessment year 2005-06 is allowed for statistical purpose and the department's appeal is also allowed for statistical purpose. Appeals of the assessee for the assessment years 2006-07 is allowed, whereas appeal for 2008-09 is allowed for statistical purpose.
Order pronounced on 6th December, 2013
Sd/- Sd/-
P.M.JAGTAP AMIT SHUKLA
ACCOUNTANT MEMBER JUDICIAL MEMBER
मंब
ु ई MUMBAI, दनांक DATED: 06.12.2013
f{x~{tÜ? P.S.
आदे श क त ल प अ े षत / Copy of the order forwarded to:
(1) नधा रती / The Assessee;
(2) राज व / The Revenue;
(3) आयकर आयु (अपील) / The CIT(A);
(4) आयकर आयु / The CIT, Mumbai City concerned;
(5) वभागीय त न ध, आयकर अपील य अ धकरण, मब
ंु ई / The DR, ITAT, Mumbai;
(6) गाड फाईल / Guard file.
स या पत त / True Copy
आदे शानस
ु ार / By Order
उप / सहायक पंजीकार / (Dy./Asstt. Registrar)
आयकर अपील य अ धकरण, मब
ुं ई / ITAT, Mumbai