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TaxTMI 
TaxTMI 
TaxTMI 
2022 (7) TMI 1367
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....ed Additional Commissioner of Income-tax (Transfer Pricing) - III, Bangalore ("learned TPO") in making an adjustment of INR 49,18,48,634 to the provision of contract software development and related services provided to its associated enterprises. (corresponding to revised ground no. 1 & original ground no. 1) 2. On the facts and in the circumstances of the case and in law, the learned DRP / AO / TPO erred in: 2.1 Rejecting the Transfer Pricing ("TP") documentation maintained by the Appellant under Section 92D of the Act in good faith and with due diligence; (corresponding to revised ground no. 2.1 & original ground no. 2.1) 2.2 Disregarding the application of multiple-year data while computing the profit level indicators ("PLI") of the comparable companies; (corresponding to revised ground no. 2.2 & original ground no. 2.2) 2.3 Using data, which was not contemporaneous and which was not available in the public domain at the time of preparing the TP documentation; (corresponding to revised ground no. 2.3 & original ground no. 2.3) 2.4 Rejecting the comparability analysis undertaken by the Appellant in its TP documentation in accordance with the provisions of the Act read ....
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....s part of operations for the purpose of computing the Appellant's operating mark-up on total cost as well as to arrive at the arm's length price. (corresponding to revised ground no. 3 & original ground no. 3) 4. On the facts and in the circumstances of the case and in law, the learned DRP / AO / TPO erred in including the reimbursement of expenses received, as a part of cost base in determining the arm's length price even though the same has been accepted to be at arm's length by the learned TPO in his transfer pricing order. (corresponding to revised ground no. 4 & original ground no. 4) 5. On the facts and in the circumstances of the case and in law, the learned DRP / AO / TPO erred in making an adjustment even to the value of domestic transaction instead to the value of international transaction as per section 92C of the Act. (corresponding to revised ground no. 5 & original ground no. 5) 6. On the facts and in the circumstances of the case and in law, the learned DRP /AO /TPO , erred in not providing the risk adjustment based on the actual differences in the risk profile between the Appellant and the comparable companies for the purpose of determining the....
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....C of the Act despite the fact that the income of the Appellant was eligible for tax holiday u/s. loA of the Act. (corresponding to additional ground no. 13) Additional grounds of appeal filed on 16.01.2018 14. On the facts and in the circumstances of the case and in law, the learned TPO erred in not excluding 'Larsen & Toubro Infotech Ltd.' in its comparability analysis even though it is functionally dissimilar to the Appellant. (corresponding to additional ground no. 14) 15. On the facts and in the circumstances of the case and in law, the learned TPO erred in not excluding 'Persistent Systems & Solutions Limited' in its comparability analysis which is functionally dissimilar to the Appellant. (corresponding to additional ground no. 15) Additional grounds of appeal filed on 06.09.2021 16.1 On the facts and in the circumstances of the case and in law, the order dated 3o January, 2014 passed by the Learned Addl. Commissioner of Income-tax (Transfer Pricing) - III (learned TPO') under section 92CA of the Act is beyond the time limit prescribed under section 92CA(3A) r.w.s 153 of the Income-tax Act, 1961 (`Ace) thus making the transfer pricing order ill....
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....e case. 2. On the facts and in the circumstances of the case the Dispute Resolution Panel erred in law in holding that the size, turnover and brand of the company are the deciding factors for treating a company as a comparable and accordingly erred in excluding M/s. Infosys Technologies Ltd. as comparable. 3. On the facts and in the circumstances of the case, the Disputes Resolution Panel erred in excluding uncontrolled comparables having turnover more than Rs. 200 crores in the absence of Turnover criterion prescribed in Rule 1013 of Income Tax Rules and also there being no correlation between turnover and profit margin. 4. On the facts and in the circumstances of the case, the Disputes Resolution Panel erred in fixing the RPT filter at 0% of total revenue by ignoring the TPO's observation that the basis for determining the threshold limit for eliminating companies having RPT transactions more than 25% on sales was quite legitimate within the definition of Sec.10A(a) which was through the determination of Indian Companies with foreign shareholding greater than 26% and therefore had its basis in the provisions of the IT Act and the AS 18. 5. On the facts and in the circ....
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....otal turnover also. 10. On the facts and in the circumstances of the case the Dispute Resolution Panel erred in placing reliance on the decision of the Hon'ble High Court of Karnataka in the case of M/s. Tata Elxsi Ltd. which has not become final since the same has been not accepted by the Department and SLPs are pending before the Hon'ble Supreme Court. 11. For these and other grounds that may be urged at the time of hearing, it is prayed that the directions of the Dispute Resolution Panel in so far as it relates to the above grounds may be reversed. 12. The appellant craves leave to add, alter, amend and / or delete any of the grounds mentioned above." 3. The assessee has raised the following additional grounds vide application dated 06.09.2021 wherein the legal issue has been raised. "16.1 On the facts and in the circumstances of the case and in law, the order dated 3o January, 2014 passed by the Learned Addl. Commissioner of Income-tax (Transfer Pricing) - III (`Ld. TPO') under section 92CA of the Act is beyond the time limit prescribed under section 92CA(3A) r.w.s 153 of the Income-tax Act, 1961 (`Act') thus making the transfer pricing order illegal, b....
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.... reported in 187 ITR 688, we are admitting the additional ground raised by the assessee. Accordingly, the application dated 06/06/2021 raising additional grounds 16.1 to 16.3 stands allowed. As the above additional grounds raised by assessee goes to the root cause, it is necessary to adjudicate this issue first. 9. Before us the Ld.AR contended that the order passed by the Ld.TPO is time barred under the provisions of section 153 rws 92CA(3) of the Act and hence it is liable to be quashed. He referred to the provisions of section 153(1) and submitted that reference u/s 92CA (3) of the Act was received by the Ld.TPO on 23/07/2012 and therefore date of limitation for passing of the order by ld. TPO expired on 30/01/2014. Whereas the Ld.TPO passed order u/s 92CA(3) on 31/01/2014 therefore, the order passed by the Ld.TPO is barred by the limitation. Ld. AR thus submitted that since the order of the Ld.TPO is barred by limitation, subsequent proceedings made pursuant to order u/s.92CA(3) does not survive. 10. He submitted that on identical facts, this issue has been decided in following case: * Decision of Hon'ble Delhi Tribunal in case of Honda Trading Corporation vs. DCIT repor....
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....sessment year commencing on the 1st day of April, 1988, or any earlier assessment year, is filed under sub-section (4) or subsection (5) of section 139, whichever is later :] Provided that in case the assessment year in which the income was first assessable is the assessment year commencing [on or after the 1st day of April, 2004 but before the 1st day of April, 2010], the provisions of clause (a) shall have effect as if for the words "two years", the words "twenty-one months" had been substituted :] [Provided further that in case the assessment year in which the income was first assessable is the assessment year commencing [on or after the 1st day of April, 2005 but before the 1st day of April, 2009] and during the course of the proceeding for the assessment of total income, a reference under sub-section (1) of section 92CA-- (i) was made before the 1st day of June, 2007 but an order under sub-section (3) of that section has not been made before such date; or (ii) is made on or after the 1st day of June, 2007, the provisions of clause (a) shall, notwithstanding anything contained in the first proviso, have effect as if for the words "two years", the words "thirty-three m....
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....e ALP of the international transaction by the TPO emanating from his time barred order passed u/s. 92CA(3) is unsustainable. Hon'ble Delhi Bench thus directed for deletion of addition of on account of transfer pricing adjustment made in the final assessment order. Hon'ble Delhi Tribunal held as under:- "B. Time limit for passing of order by the TPO 6.1. The ld. AR also challenged the passing of the order by the TPO. It was submitted that the TPO passed order on 31.5.2014, which was time barred and, hence, the same should be annulled leading to the quashing of the final assessment order. In the opposition, the ld. DR supported the Revenues stand. 6.2. We have heard the rival submissions and perused the relevant material on record. It has been noticed above that the provisions of section 92CA requiring the passing of the order by the TPO determining the ALP of the international transactions, came into being by the Finance Act, 2002. As per sub-section (3) of section 92C, the TPO is required to pass the order determining the ALP of the international transactions. No time limit was initially given for the passing of order by the TPO. It is only by the Finance Act, 2007, that sub-....
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...., after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, transfer any case from one or more Assessing Officers subordinate to him (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) also subordinate to him. Dispute arose in Sahara Hospitality Ltd. vs. CIT (2013) 352 ITR 38 (Bom) as to whether or not giving the assessee a reasonable opportunity of being heard before the transfer of case by the Chief Commissioner, in the backdrop of the use of the word `may in the provision, be considered as mandatory. The Hon'ble Bombay High Court has held that the word `may in section 127 should be read as `shall and hence the granting opportunity to the assessee is mandatory. 6.7. Section 16 of the Wealth-tax Act, 1957 deals with the assessment of wealth. Section 16A having marginal note of `Reference to Valuation Officer provides through subsection (1) that : `For the purpose of making an assessment (including an assessment in respect of any assessment year commencing before the date of comi....
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....d value of the asset by more than what is envisaged by r. 3B, then the WTO had no option, but to make a reference and he is not to wait for a request from the assessee to make a reference. Similar view has been expressed by the Honble Delhi High Court in Sharbati Devi Jhalani vs. CWT & Ors. (1986) 159 ITR 549 (Del). It is vivid from the above discussion that the use of word `may or `shall in a provision is not conclusive of its mandatory or directory nature. One needs to go through the text of the provision and the context in which such a word has been used. 6.8. Reverting to section 92CA, we find that the Finance Act, 2007 inserted sub-section (3A) carrying the time limit of sixty days for passing of the order by the TPO before the expiry of time limit for completion of assessment by the AO u/s 153. Despite the use of the word `may, the time limit for passing the order by the TPO is mandatory, as in the otherwise situation of the TPO having been allowed more time by implication, say of three months or more, could at that time have frustrated the provisions of section 153 for the passing of the assessment order by the AO. Thus we have no hesitation in holding that the use of the ....
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....rder passed by the AO was liable to be set aside. We have held above that the draft order was passed within time and only the order of the TPO is timebarred. When an order is passed without jurisdiction or beyond the permissible time, it is considered as null and void. The effect of passing a null and void order is that it is considered as non est, meaning thereby, that it entails all the consequences of not having been passed at all and is ignored for all practical purposes. The Honble Madras High Court in Vijay Television (P.) Ltd. vs. DRP (2014) 369 ITR 113 (Mad) considered a case in which the assessment order was directly passed without routing through draft order or DRP. The Honble Court held it to be a noncurable defect and resultantly the assessment was quashed. It was held that when there is an omission on the part of the AO to follow the mandatory procedure prescribed under the Act, such an omission cannot be termed as a mere procedural irregularity and it cannot be cured. Extantly, we are confronted with a situation in which the draft order has been passed in time but the lapse has come in the passing of the order by the TPO. The consequence of the above scenario is that ....
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....1 to 16.3 stands allowed. 19. The Ld.AR argued that as the order passed u/s. 92CA(3) is passed beyond the period of limitation, all consequential orders are also passed beyond the period of limitation. Referring to the draft assessment order passed by the Ld.AO, the Ld.AR prayed that the addition made therein can't be considered for purpose of making addition in the hands of the assessee. 20. On the contrary, the Ld.CIT.DR referred to following observations of Hon'ble Delhi Tribunal in case of Honda Trading Corporation vs. DCIT reported in (2015) 61 taxmann.com 233. "6.9 Having held that the word 'may' in section 92CA(3A) should be read as 'shall', we once again note that prior to the insertion of section 144C by the Finance Act, 2009, the time limit for completion of assessment was contained in section 153 and accordingly the time limit for the passing of the order by the TPO was also set out accordingly in section 92CA w.r.t. the time limit for the completion of assessment as per section 153. However, with the insertion of section 144C, the time limit for the completion of assessment, or in other words, for passing of the final assessment order, stood shifted....
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....there is an omission on the part of the AO to follow the mandatory procedure prescribed under the Act, such an omission cannot be termed as a mere procedural irregularity and it cannot be cured. Extantly, we are confronted with a situation in which the draft order has been passed in time but the lapse has come in the passing of the order by the TPO. The consequence of the above scenario is that the passing of a valid and properly timed draft order cannot lead to the setting aside of the final assessment order. However the passing of the time barred order by the TPO, which is again a mandatory procedure prescribed under the Act, would be a non-curable defect, having the consequence as if it was not passed. In such circumstances, though the final assessment order would be saved but the addition on account of transfer pricing adjustment arising from the determination of the ALP of the international transactions by the TPO as emanating from his time barred order, would be unsustainable. We hold accordingly and direct the deletion of addition on account of transfer pricing adjustment made in the final assessment order." 21. Respectfully following the above view, we hold that the adjust....
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.... considering the fact that each year should be considered separately. [corresponding to ground no. 6.4] 14. As far as the aforesaid ground of appeal are concerned, the assessee claimed deduction under section 80JJAA of the Act a sum of Rs.4,26,67,792/-. The AO denied the claim of the assessee for deduction on 2 grounds namely: (1) that persons working in software units cannot be regarded as workmen as contemplated by the provisions of section 80JJAA of the Act. (2) Deduction under section 80JJAA cannot be allowed in respect of additional wages paid to employees who are working in 10A units because under the provisions of 80A(4) of the Act, the assessee cannot enjoy benefits both under sections 10A and 80JJAA of the Act in respect of the same income. On objections by the assessee before the DRP, the DRP rejected the claim of the assessee. The DRP also took the view that, the assessee has not given Form 10DA for each 10A unit separately. The AO in the order giving effect to the order of the DRP on this aspect has observed as follows: "7.5 Apart from the above, I would like to highlight the fact that as per the provisions of section 80JJAA, deduction is allowable taking each unit ....
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....nder : "(4) Notwithstanding anything to the contrary contained in Section 10A of section 10AA or section 10B or section 10BA or in any provisions of this Chapter under the heading 'C.-Deductions in respect of certain incomes", where, in the case of an assessee, any amount of profits and gains of an undertaking or unit of enterprise or eligible business is claimed and allowed as a deduction under any of those provisions for any assessment year, deduction in respect of, and to the extent of, such profits and gains shall not be allowed under any other provisions of this Act for such assessment year and shall in no case exceed the profits and gains of such undertaking or unit or enterprise or eligible business, as the case may be." However coming to the second limb of the reasoning given by the lower authorities, which is section 80A(4), the said section is reproduced hereunder : As per the assessee even if deduction under section 10A of the Act is allowed for these units, a further deduction u/s.80JJA of the Act, is also allowable. Argument of the assessee's counsel is that the limitation put in by Section 80A(4) of the Act, would apply only to profit linked deductions. Ther....
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....it was held by the coordinate bench at para 6 and 7 of its order, as under : 6. We have heard the rival submissions and carefully perused the records. Considering the factual position after referring to the various documents filed by the assessee, the learned CIT(A) held as under : "According to the AO if an employee or workman is getting a salary of more than Rs. 1,600 per month he is not covered by the definition of workman. However as per cl. (iv) of s. 2(s) of the Industrial. Disputes Act a worker, employed in supervisory capacity and getting a salary of more than Rs. 1,600 per month only be excluded from the definition of workman. In appellant's case the software engineers in respect of whom deduction under s. 80JJAA has been claimed have not been employed in a supervisory capacity even though they may be getting a salary of more than Rs. 1,600 per month. As the software engineers were not employed in supervisory capacity they cannot be excluded from the definition of workman. Further as per the notification of the Karnataka Government, the appellant company engaged in the development of software is covered by the Industrial Disputes Act. As such, I am of the considere....
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....the assessment years, number of employees without supervisory roles, workmen joined, number of supervisors joined and workmen joined and relieved during the years under consideration. A cursory perusal of this list shows that the assessee had claimed deduction in respect of employees, who had joined as engineers in their respective field such as systems engineer, test engineer, software design engineer, IC design engineer, lead engineer etc. A cursory perusal of those lists establishes that the assessee had claimed deduction in respect of the engineers employed not in the category of supervisory control. All these details were filed before the AO during assessment proceedings. These facts were not properly considered by the AO. Further, from the order of the CIT(A), it is seen that he had taken note of the notification issued by the Government of Karnataka and concluded that as per the notification issued, the assessee company engaged in the development of software is covered by the Industrial Disputes Act, 1947. Further it is not the case of the Revenue that the assessee did not fulfil the conditions extracted elsewhere in this order. Considering all those factual matters we do no....