TaxTMI 
TaxTMI 
2017 (7) TMI 34
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....Common Wealth Games (CWG) 2010, New Delhi, contract which was awarded by Doordarshan (a constituent of Prasar Bharathi, India) for producing and providing the coverage of the CWG 2010 to the Host Broadcaster, Prasar Bharathi. This contract for Rs. 246 crore allotted by Prasar Bharathi, was further sub-contracted by the assessee to M/s Zoom Communications Ltd., for Rs. 177 Crore on back-to-back basis. The assessee did not file any return of income for the year in question. In response to notice u/s 142(1), the assessee initially filed its return on 30.9.2011 declaring a loss of Rs. 6,01,46,503/-, which was revised to a loss of Rs. 45,06,99,539/- on 28.9.2012. The assessee did not report any international transaction nor filed Form No. 3CEB along with these returns of income. During the course of assessment proceedings, the assessee declared some international transactions at the instance of the Assessing authority. The AO made reference to the Transfer Pricing Officer (TPO) for determining the arm's length price (ALP) of the international transactions. The TPO, vide his order dated 30-1-2014, rejected the assessee's contention that the transfer pricing provisions were not ap....
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....and fallout of the Shunglu Committee report, the ld. AR submitted that all the charges of financial irregularities leveled against the assessee have been dropped and the matter is now lying in arbitration proceedings. The ld. DR opposed this contention and submitted that the matter has not been finalized as has been stated on behalf of the assessee. 6. After considering the rival submissions and perusing the relevant material on record about the transfer pricing adjustment, we find that there is an elaborate discussion in the final assessment order about the order passed by the TPO recommending the transfer pricing adjustment. However, the total income of the assessee has been computed by the AO in the final assessment order at Rs. 32.81 crore without making any addition towards transfer pricing adjustment. It, therefore, becomes vivid that albeit there is a discussion in the assessment order about the transfer pricing adjustment, but eventually no addition has been made by the AO on this score. In the absence of any such addition, we fail to find any cause of grievance to the assessee insofar as the discussion is contained in the final assessment order about the transfer ....
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....nsfer pricing adjustment in accordance with law. 7. The appeal will now be listed before the ITAT on 1st June 2016. The ITAT is requested to dispose of the appeal within a period of three months thereafter." 4. Consequently ground Nos. 16 to 23, which were earlier not decided by the coordinate bench, are required to be decided now. Grounds of appeal of the assessee on transfer pricing issues are as under:- "Transfer pricing 16. That in the absence of any international transaction entered into by the Appellant, the reference made by the AO to the TPO under section 92CA(3) was bad in law and void ab-initio. 17. That the TPO/DRP grossly erred in not appreciating that no international transaction was reported by the Appellant for the relevant period since the Appellant had followed the cash system of accounting and there was no impact on the profit and loss account of any such alleged international transaction and hence the TPO could not have assumed jurisdiction to bench mark such alleged transactions. 18. That the order of the DRP is contradictory to that extent since the cash system of accounting has been accepted by it and in terms of....
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....s stated in paragraph No. 13 of his order as under:- "13. CONCLUSION 13.1 Thus, the argument of the assessee that the 'Transfer Pricing Provisions are not applicable in the present case, has also been found to be contrary to the law and also on facts. 13.2 In view of the above facts and discussions, it is held that the payments made/ required to be made by the Firm to its AEs i.r.o the international Transactions are not to be allowed and the Arm's Length Price of such transactions is taken as NIL for the transactions with SIS OB and Fatpipe. For the interest to be charged by the Firm from SIS Holdings on intercompany receivables, the rate of interest charged is not at arm's length. For the present year, interest required to be charged by the Finn has been determined to be less than the arm's length price of the international transaction, which will require suitable adjustment for FY 2012-13. The Assessing Officer will have to accordingly make adjustments in the relevant years as discussed above. 13.3 Since, the aggregate value of international transactions exceeds Rs. 1 crore, in terms of clause (2) of Rule 1QD of the Income Tax R....
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....f M/s SIS Live for the A.Y. 2011-12.-.". In its reply dated 19.02.2014, the assessee has submitted that:- "since no payment or receipt in respect of the said transaction has taken place during the relevant assessment year, therefore the aforesaid adjustment to the total income cannot be made in the subject year and should be made only in subsequent years" The assessee has also contended as above since it is following Cash System of Accounting. The assessee has a/so relied on extracts of the various pronouncements of various authorities. However, the issues and context in those cases are not applicable in the present case, hence any judicial or authoritative order shall be looked upon in its totality and it is further to be seen that whether those issues squarely cover the issues in present case. When we look into these issues the answer to the aforementioned question arrives in negative. Hence, this contention of the assessee based on extract of the order of AAR is not acceptable. M/s SIS Live has maintained its books of accounts on cash basis. The books of accounts for the F.Y. 2010-2] of the assessee analysed during post search proceedings were, therefo....
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....d TPO has entred in to following „ International transactions‟.:- S.No. International transaction Name of the AE Value (in INK) 1. Availing of technical services from AE SIS Outside Broadcasts Limited ('SIS OB') 109,450,616 2. Availing of equipment on hire from AE Fatpipe Satcom Limited ('Fatpipe') 166,090,155 3. Reimbursement of expenses to AE Satellite Information Services Limited ('SIS Limited) 2,366,572 4. Inter-company receivables Satellite Information Services (Holdings) Limited ('SIS Holdings') 210,029,760 8. The ld AO/ ld Transfer Pricing Officer has proposed an adjustments of Rs. 318760236/- being the total sum of international transaction holding the ALP as NIL and further as such sum is given as a loan he calculated the interest thereon @ 15% on the amount of Rs. 3018760236/- calculated at Rs. 47814035/- as interest and thereby made a total addition of Rs. 366574271/-. Therefore, assessee is aggrieved by this addition on account of transfer pricing issues and hence, submitted that ground No. 16 to 23 of the appeal needs to be adjudicated. 9. The ld Authorised Represe....
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....ame. Moreover, the amount of withholding tax of INR 16,820,091 was also disallowed by SIS Live in its ROI. In view of the fact that the said transaction did not have a bearing on SIS Live's tax liability for the said year, SIS Live took a position that provisions of Section 92 did not apply to the said transaction. * Reimbursement of expenses to AE (INR 2,366,572): During the said year, SIS Limited, an AE of SIS Live, incurred certain expenses pertaining to SIS Live (in the nature of professional fee, charges for notarization and charges from Royal Bank of Scotland in respect of guarantee for the contract of SIS Live) amounting to INR 2,366,572. Such expenses were recorded in the current account of SIS Limited. The said amount was not paid by SIS Live during the year and also not claimed as deduction in its ROI. In view of the fact that the said transaction did not have a bearing on SIS Live's tax liability for the said year, SIS Live took a position that provisions of Section 92 did not apply to the said transaction, * Inter-company receivables (INR 210,029,760): As a policy of SIS group, all transactions relating to currency co....
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....he year since no payments were made in respect of these transactions by the Appellant and no deductions were claimed in its return of income. It is important to mention here that the cash system of accounting has been confirmed by the DRP and the revenue has not filed an appeal against this finding (Kindly refer internal Pg. 4 and 5 of DRP Directions, Finding Pg. 9). The first legal issue which requires consideration of the Hon'ble Tribunal is whether in the instant facts, the AO was justified in making reference to TPO despite noting that Appellant is following cash system of accounting and there is no bearing on the profits, income, losses or assets as far as the transactions with AE is concerned during the relevant period. Reliance is placed, on CBDT Instruction No. 3 / 2016 which clarifies that before making reference to TPO, the AO must, as a jurisdictional requirement, record his satisfaction that there is an income arising and / or being affected on determination of arm's length price of an international transaction before seeking approval of Principal Commissioner of Income Tax. This view is also fortified by the Hon'ble Delhi High Court in the Sony Eri....
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.... the defect of jurisdiction of an authority goes to the root of the matter and strikes at its very authority to pass any order and such a defect cannot be cured even by consent of the parties." The TPO disregarded the submissions of Appellant that since in the present matter the transaction with the AE did not have any bearing on the profits, income, losses or assets of the Appellant during the relevant assessment year, for the purposes of Transfer Pricing provisions under Chapter X of the Act, the said transactions cannot be an international transaction. (Kindly refer the internal page 19 to 22 of TPO order). A plain reading of S. 92(1) of the Act which specifies that 'Any income arising from an international transaction shall be computed having regard to the arm's length price' implies that the potential income, if any, should arise from the impugned international transaction which is before the TPO for consideration and not out of a hypothetical international transaction which may or may not take place in the future. It is respectfully submitted that the facts in the instant case are similar to the ratio laid down by Hon'ble Pune ITAT in the case of Eato....
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....e that "where a statute requires to do a certain thing in a certain -way, the thing must be done in that way or not at air - A.R. Antulay vs R.S. Nayak (1984) 2 SCC 500 (SC Constitutional Bench 5 Judges)] The other jurisdictional issue which immediately springs up is that by recasting the P&L account and concluding that the arm's length price of said transactions with SIS OB and Fatpipe be taken at Nil and further charging notional interest in respect of the transaction of inter-company receivables with SIS Holdings, the TPO could not have proceeded since the impact of this conclusion gets hit by the bar contained in S. 92(3). What the TPO completely missed was that by recasting the P&L account, it had the necessary effect of reducing the taxable income of the assessee. This is impermissible. Hence all action of the TPO is bound to be struck down. The TPO benchmarked the transaction with Fatpipe Satcom Ltd. and SIS OB by taking the Foreign AE as the tested party and benchmarked the same at Nil value (kindly refer the internal page 5 of TPO order). As far as the transaction with SIS Holdings of Inter Company Receivables is concerned, the TPO held that the rate ....
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.... case till now have already been recorded in para no. 4 of the order of the coordinate bench. The contention of the assessee is that no reference could have been made by the ld Assessing Officer u/s 92CA of the Act to the ld Transfer Pricing Officer in absence of any „international transaction‟ as assessee has not claimed this expenses as deduction and it has not impacted income, profit, loss, or assets of the assessee. As assessee follows cash system of accounting, hence, the year in which the assessee actually receives the income or pays the expenditure the same is recorded in the books of account and only in that year the provisions of section 92B applies. 12. The provisions of section 92B are as under:- "Section 92B of the Income Tax Act, 1961 (1) For the purposes of this section and sections 92, 92C, 92D and 92E, "international transaction" means a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or asset....
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....y an enterprise with an associated enterprise, irrespective of the fact that it has bearing on the profit, income, losses or assets of such enterprises at the time of the transaction or at any future date ; (ii) the expression "intangible property" shall include- (a) marketing related intangible assets, such as, trademarks, trade names, brand names, logos ; (b) technology related intangible assets, such as, process patents, patent applications, technical documentation such as laboratory notebooks, technical know-how ; (c) artistic related intangible assets, such as, literary works and copyrights, musical compositions, copyrights, maps, engravings ; (d) data processing related intangible assets, such as, proprietary computer software, software copyrights, automated databases, and integrated circuit masks and masters ; (e) engineering related intangible assets, such as, industrial design, product patents, trade secrets, engineering drawing and schematics, blueprints, proprietary documentation ; (f) customer related intangible assets, such as, customer lists, customer contracts, customer relationship, open purchase orders ....
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....ever, the entire service fee was not paid by the assessee to that party. Apparently, the same was not claimed as deduction by the assessee. According to us the above transaction falls into the nature of transaction of "provision of services" u/s 92B(1) of the Act and as the condition of bearing on profit income and loss of the assessee applies to any other transaction only. Therefore, according to us this transaction is covered in the definition of „international transaction‟. 15. Coming to the second transaction of Rs. 2366572/- which is reimbursement of expenses to Satellite Information services ltd. in connection with professional fees etc of Royal Bank of Scotland. These expenses were not paid by the SIS Live during the year and admittedly, no claim of deduction of these expenditure was also made. According to us this transaction is also falling into the provisions of services and it is not required that such transaction should affect the profitability of the assessee. Therefore, it is also according to us an international transaction. 16. The next transaction was availing of equipment on hire from M/s. Fatpipe Satcom Ltd of Rs. 166090515/-. This transaction i....
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....claimed deduction of such expenditure the provisions of Chapter X does not apply. Ld AR has heavily relied up on the decision of Honourable Bombay high court in case of Vodafone India Services P Limited V UOI & Others 368 ITR 1 ( Bom). According to us, such reliance on that decision is misplaced because it dealt with the last category of transaction being issue of share capital i.e. " other transactions, which impacts profit, Income, loss or assets of the assessee. In the present case, the impugned transactions are covered under lease of tangible assets and provision of services. The assessee has relied upon the decision of coordinate bench in case of Bharti Airtel Vs. Addl CIT 161 TTJ 428 (Del). The facts of this case are with respect to corporate guarantee issued which was falling into the definition of any other transaction having a bearing on the profit, income, losses or assets of enterprise. In the present case the international transaction of the assessee are falling into the lease of property or provisions of services or lending and borrowing money. Therefore, the reliance placed upon by the assessee on this decision is incorrect. The other decision relied upon by the asses....