1000cr tax demand order decided by Bangalore ITAT

Bangalore ITAT stay demand of 1000cr by revenue. 

TP - Reimbursement of expenses were to be excluded while computing the operating revenues of the assessee while determining the ALP under the TNMM method. Companies like Infosys, Tata Elxsi, Wipro extreme turnover are not comparable.

 

Seprate book of account are not required to be maintained for STPI/SEZ unit, however Foreign exchange remittances in relation to export of computer software out of India should be established by the assessee to claim deduction u/s 10A/ 10AA.

 

TRANSFER PRICING ISSUES

 

Avani Cincom Technologies Ltd, Celestial Biolabs Ltd, Kals Information System Ltd cannot be regarded as comparable companies for the purpose of Transfer Pricing comparability analysis since these companies are developing software products and not purely or mainly software development service provider.

 

Infosys Technologies Ltd, Tata Elxsi Ltd and Wipro Ltd have to be excluded as a comparable while determining ALP in the case of the Assessee in the present case.

 

Birla Technologies Ltd should be considered as a Comparable. Inclusion of PSI Data Systems Ltd as comparable is remitted back to TPO for fresh consideration.

 

Exclusion of reimbursement of expenses while computing operating revenues of the assessee while determining the ALP under TNMM – remitted to TPO for fresh consideration.

 

Adjustments to margins of comparable companies on account of Risk, research and development undertaken by comparable companies – remitted back to DRP to examine the claim of the Assessee on merits and after dealing with the arguments raised by the Assessee in the light of decided cases.

 

CORPORATE TAX ISSUES

 

It needs to be clarified here that if there is no RBI approved Bank Account in which sale proceeds of export of computer software are credited, still under the main provisions of Sec. 10A(1) of the Act, the Assessee can get the benefit of deduction u/s.10A of the Act, to the extent the Assessee establishes that sale proceeds of computer software exported out of India were brought into India in convertible foreign exchange. Expln.-2 is only an enabling provision which deems credit of sale proceeds to a separate RBI approved account for the purpose of Sec.10A(1) as equivalent to bringing in sale proceeds into India in convertible foreign exchange.

 

In case the revenue is of the belief that certain new material which has come to its notice after conclusion of the original assessment proceedings, which shows that the assessee has not in fact exported computer software, then it is open to it to use such material in accordance with law.  It cannot be said on the facts of the case that the revenue in an appeal before the Tribunal is seeking to change the very basis on which an assessment had been concluded by the AO.

 

Revenue is given liberty to rely on additional evidence in set aside proceedings in respect of issues which are set aside and remanded to the assessing officer for fresh consideration.

 

Revenue is given liberty to use outcome of the transactional audit highlighting the trail of each of every export transaction and to match contract-wise repatriation of 30% onsite revenue pertaining to IBM India Pvt. Ltd. (the assessee) from 2001-2012, in accordance with law in the event of any outcome of the audit which has a bearing on the total income of the assessee.

 

Deduction u/s. 10A of the Act is dependent on fulfillment of conditions laid down in that section. The statement of auditor cannot alter the claim for deduction u/s. 10A of the Act, if otherwise the conditions laid down in the said section are fulfilled by an assessee.

 

There is no requirement for maintaining separate books of accounts for claiming deduction u/s. 10A/10AA of the Act and the books of accounts maintained by the assessee sufficiently enable computation of the profits of various STP/SEZ units.

 

It would be just and appropriate to set aside the order of the DRP and remand the issue to the DRP for fresh consideration and direct the DRP to examine the claim of the assessee on the basis of evidence that the assessee may lead to prove the receipt of sale proceeds of computer software exported out of India being brought into India in convertible foreign exchange. The DRP will be at liberty to examine as to whether the convertible foreign exchange was brought into India and that they represent consideration received for export of computer software. The AO in the set aside proceedings before the DRP will be at liberty to rebut such claim of the assessee including the claim that the foreign exchange brought in does not represent sale proceeds of computer software exported out of India. As mentioned in para 3.56 of this order, the assessee should produce before the AO all documents referred to in the letter dated 12.07.2012 of Deutsche Bank to RBI. We give liberty to the assessee to file such documents as may be necessary to establish its claim for deduction u/s. 10A/10AA of the Act.

 

DRP has no power to set aside any proposed variation or issue any direction under Sec.144C(5) of the Act for further enquiry and passing of the assessment order. The DRP in our view has therefore exceeded its jurisdiction in setting aside the issue to the AO for fresh consideration. We therefore set aside the directions of the DRP in this regard and remand the issue to the DRP for fresh consideration after affording due and proper opportunity to the Assessee. Consequently the order of the AO making impugned addition is also set aside and the issue is remanded to the DRP for fresh consideration.

 

Entrance fee for acquiring corporate club membership incurred by the Assessee has to be allowed as revenue expenditure.

 

As held by the Hon'ble Bombay High Court in the case of Yashpal Sahini (supra), the revenue will be precluded from recovering taxes/amounts as evidenced by the TDS certificates filed by the Assessee before the AO, till completion of due verification by the AO.