INCOME TAX APPELLATE TRIBUNAL
The reference made by the Ld. A.O. to the Learned Additional Commissioner of Income Tax, TPO-I(I), New Delhi (hereinafter referred as ‘Ld. TPO’) suffers from jurisdictional error as the Ld. A.O. has not recorded any reason on the basis of which he reached the conclusion that it was necessary or expedient to refer the matter to the Ld. TPO.
Colt Technology Services India Pvt. Ltd., 103, Ashoka Estate, Barakhamba Road, New Delhi. (Appellant) PAN: AAACC3512G Vs. ITO, Ward-3(4),New Delhi. (Respondent)
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: D: NEW DELHI
BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER
SHRI J.S. REDDY, ACCOUNTANT MEMBER
Assessment Year: 2007-08
Colt Technology Services
India Pvt. Ltd.,
103, Ashoka Estate,
New Delhi. (Appellant)
Assessee by: Shri Vikas Jain, Advocate
Revenue by: Shri Piyush Jain, CIT, DR
PER A.D. JAIN, JUDICIAL MEMBER
This is an appeal filed by the assessee for Assessment Year 2007-08, taking the following grounds:-
“1. The order passed by the Learned Income Tax Officer, ward 3 (4), New Delhi (hereinafter referred as ‘Ld. A.O.’) under section 143 (3) read with section 144C of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) is bad in law and on the facts and circumstances of the case.
2. The reference made by the Ld. A.O. to the Learned Additional Commissioner of Income Tax, TPO-I(I), New Delhi (hereinafter referred as ‘Ld. TPO’) suffers from jurisdictional error as the Ld. A.O. has not recorded any reason on the basis of which he reached the conclusion that it was necessary or expedient to refer the matter to the Ld. TPO.
3. The ld. A.O. as well as the Ld. TPO and the Learned Dispute Resolution Panel (hereinafter referred as ‘Ld. DRP’) have erred in law as well as facts of the case in not accepting the Arm’s Length Price (hereinafter referred as ‘ALP’) determined by the appellant.
4. The Ld. A.O/TPO/DRP has acted mechanically and passed the order in a mechanical manner without application of mind and without understanding the intricacies of the international transactions undertaken by the appellant.
5. The Ld. A.O/TPO/DRP has erred in ignoring the fact that the appellant is entitled to deduction u/s 10A of the Act on its profits from provision of Information Technology Enabled Services (‘ITES’) and Contract Software Development (‘CSD’) Services to overseas associated enterprises and there is no untoward motive to derive any tax advantage by manipulating transfer
prices of International Transaction undertaken by it with its associated enterprises.
6. The Ld. A.O/TPO/DRP has erred in determining the ALP on the basis of data for Financial Year (‘FY’) 2006-07 only and ignoring the data for two prior financial years i.e. FY 2004-05 and FY 2005-06.
7. The Ld. A.O/TPO/DRP has erred in collecting selective information from the companies u/s 133 (6) of the Act which was not available in the public domain and relying on the same for comparability purposes.
8. The Ld. A.O/TPO/DRP has erred in rejecting the analysis conducted by the appellant and conducting a fresh comparability analysis for determining the ALP.
9. The Ld. A.O/TPO/DRP has erred in adopting inappropriate quantitative filters while carrying out a fresh comparability analysis.
10. The Ld. A.O/TPO/DRP has erred in rejecting certain companies selected by the appellant as comparables in terms of functions performed, assets employed and risks assumed and in accepting certain companies which are not comparable to the appellant for determining ALP.
11. The Ld. A.O/TPO/DRP has erred in accepting companies with exceptionally high operating margins as comparables on an arbitrary basis.
12. The Ld. A.O/TPO/DRP has erred in rejecting companies with low profits/losses on an arbitrary basis.
13. The Ld. A.O/TPO/DRP has erred in making incorrect working capital adjustments.
14. The Ld. A.O/TPO/DRP has erred in not allowing any risk adjustments to the appellant as it is remunerated on a cost plus mark-up basis and undertakes minimal risks.
15. The Ld. A.O/TPO/DRP has erred in not allowing the benefit of + 5% as provided by proviso to Section 92C(2) of the Act even if the difference in the value of ALP and international transaction is more than + 5% of the ALP.
16. The Ld. A.O/TPO/DRP has erred in taking an inconsistent stand by not applying the wages/sales ratio filter to the ITES segment (as applied in the CSD Segment) and thereby adopting an inconsistent stand between the ITES and CSD segments and applying this filter selectively only to the CSD segment.
17. The Ld. A.O/TPO/DRP has erred in ignoring the judicial pronouncements relied upon by the appellant.
18. The Ld. A.O. has erred in initiating penalty proceedings u/s 271(1)(c) of the Act.”
2. At the outset, it has been contended on behalf of the assessee, that with regard to certain companies, data gathered u/s 133 (6) of the IT Act was used by the TPO, without putting it to the assessee, during the assessment proceedings. A letter dated 31.07.2012 in this regard has been filed before us, contending that during the assessment proceedings for Assessment Year 2007-08, the TPO had relied upon information not available in the public domain for the segregation of the comparables; that in order to obtain such information, the TPO had exercised his powers u/s 133 (6) of the Act, it had not been shared with the assessee and no opportunity to rebut such information was given to the assessee.
3. This letter has been followed by another letter dated 07.08.2012, reiterating the contents of the aforesaid letter dated 31.07.2012 and further submitting that the matter be remitted to the file of the TPO so as to allow the assessee an opportunity to examine the information obtained by the TPO u/s 133 (6) of the Act and to rebut the conclusion arrived at by the TPO.
4. The details of the companies with regard to which data, as per the assessee, was gathered by the TPO u/s 133 (6) of the Act, but not shared with the assessee in the assessment proceedings, are being reproduced hereunder. These details are contained in the aforesaid two letters filed by the assessee:-
S.No. Name of Company Information sought
under 133 (6) of the
the ld. TPO
1. Akshay Software
2. Bodhtree Consulting Ltd. Segmental details Accepted
3. Celestial Labs Ltd. Functional Profile Accepted
4. Computech International
Ltd. [Software Division]
Functional Profile Rejected.
5. HCL Comnet Systems &
Services Ltd. [Seg.]
Financial Details of
6. Helios & Matheson
Information Technology Ltd.
Employee Cost details
& Functional Profile
7. Megasoft Ltd. Financial Details of
8. Scientific-Atlanta India
Technology Pvt. Ltd.
RPT details Rejected
9. Thirdware Solutions Ltd.
Complete details Accepted
10. Vishal Information
Functional Profile Accepted
11. Wipro Ltd. (Seg.) Segmental Details Accepted
5. A perusal of the TPO’s order does not show that the assessee was ever provided with any opportunity to rebut the information gathered by the TPO u/s 133 (6) of the Act with regard to the above named companies. The ld. DRP has also not taken this aspect into consideration.
6. Therefore, we deem it proper to remit this matter to the file of the TPO to be decided afresh in accordance with law, on affording adequate opportunity to the assessee to rebut the information gathered by the TPO u/s 133 (6) of the Act with regard to the aforementioned 11 companies.
7. In the result, for statistical purposes, the appeal of the assessee is treated as allowed.
The order pronounced in the open court on 05.09.2012.
[J.S. REDDY] [A.D. JAIN]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated, , 2012.
Copy forwarded to: -
5. DR, ITAT
ITAT, Delhi Benches