Colt Technology Services (1) Pvt. Ltd. Vs DCIT (ITAT Delhi)
Facts- The assessee Company is incorporated in India on April 1, 2004 and is a part of the Colt Group of Companies and provides Information Technology Enabled Services and contract software development solutions to its associated enterprises. The assessee performs back-end operations in all business areas such as network operations and engineering, IT service provisioning, sales and marketing support, human resources and finance.
The assessee company filed its ROI on 29.09.2010 electronically declaring an income of Rs. 18,08,195/- under normal provision of the Act after claiming deduction of Rs. 27,31,51,569/- and book profit declared at Rs. 20,28,16,758/-. The return was processed u/s 143(1) of the Act. Notice u/s 143(2) of the Act was served upon the assessee company. The representative of the assessee has participated and filed necessary details. During the year under consideration the assessee has entered into international transaction.
The case of the assessee was referred to TPO for determination of ALP u/s 92CA. The TPO vide its order dated 21/01/2014 has determined the ALP and directed the Assessing officer to add a sum of Rs.64,76,61,598/-. The draft assessment order came to be passed as per Section 143(3) read with Section 144C of the Act on 24.02.2014. The assessee has filed objection before the DRP and the DRP vide order dated 10/10/2014 restored the matter to file of the TPO for verification. The TPO vide his report dated 21/11/2014 has suggested that Rs. 55,20,72,545/- shall be treated as accumulative adjustment u/s 92CA of the Act. In compliance with the directions of the DRP and the order of the TPO, the Ld. AO by making addition of Rs. 55,20,72,496/- on account of ALP, passed the final assessment order on 28/11/2014.
Aggrieved by the final assessment order dated 28/11/2014, the assessee has preferred the present appeal. Assessee, additionally, took up the ground that interest u/s 234B and 234C cannot be levied on additional income agreed as per advance pricing agreement.
Conclusion-
Held that the issue has already been dealt and decided by us of Assessee’s own case in ITA No. 536/Del/2015 for AY 2010-11 in favour of the assessee.
With regard to additional ground of interest it is held that the High Court in the case of Prime Securities Ltd. Vs. Assistant Commissioner of Income Tax (Investigation) has held that interest under section 234B and 234C is not leviable since it was not possible for the appellant to anticipate the events that were to take place in the next financial year and pay advance tax on the basis of those anticipated events.
The levy of interest u/s 234B and 234C of the Income Tax Act on additional income agreed as per advance pricing agreement entered between appellant and the CBDT is illegal.
FULL TEXT OF THE ORDER OF ITAT DELHI
These two appeals are directed against different Final Assessment Orders dated 28/11/2014 and 27/01/2017 passed by Deputy Commissioner of Income Tax, New Delhi u/s 143(3) r/w Section 144C of Income tax Act, 1961(‘Act’ for short) for the Assessment Year 2010-11 and 2012-13 respectively.
2. The grounds of appeal in I.T.A. No. 536/DEL/2015 (A.Y 2010-11) are as under:-
“1 The order dated November 28, 2014, passed by the Learned Deputy Commissioner of Income Tax, Circle 6(1), New Delhi (hereinafter referred as ‘Ld. AO’) 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. AO to the Learned Additional Commissioner of Income Tax, TPO-l(l), New Delhi (hereinafter referred as ‘Ld. TPO’) suffers from jurisdictional error as the Ld. AO 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. AO as well as the Ld. TPO and the Hon’ble Dispute Resolution Panel hereinafter referred as (Hon’ble 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. AO / Ld. TPO / Hon’ble DRP have erred in ignoring the fact that the appellant is entitled to deduction under section 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.
5. The Ld. AO / Ld. TPO / Hon’ble DRP have erred in determining the ALP on the basis of data for Financial Year (‘FY’) 2009-10 only and ignoring the data for two prior financial years i.e. FY 2008-09 and FY 2007-08.
6. The Ld. AO / Ld. TPO / Hon’ble DRP have erred in rejecting the analysis conducted by the appellant and conducting a fresh comparability analysis for determining the ALP which did not take into consideration the functions and risks applicable to the appellants business.
7. The Ld. AO / Ld. TPO / Hon’ble DRP have erred in rejecting the quantitative filters adopted by the appellant, and adopting inappropriate quantitative filters for carrying out a fresh comparability analysis.
8. The Ld. AO / Ld. TPO / Hon’ble DRP have erred in arbitrarily 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.
9. The Ld. AO / Ld. TPO / Hon’ble DRP have erred in accepting companies with exceptionally high operating margins as comparables of the appellant on an arbitrary basis.
10. The Ld. AO / Ld. TPO / Hon’ble DRP have erred in rejecting companies with low profits / losses as comparables of the appellant on an arbitrary basis.
11. The Ld. TPO has erred in not providing the working capital adjustments to the appellant even after the specific directions of Hon’ble DRP.
12. The Ld. AO / Ld. TPO / Hon’ble DRP have 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.
13. The Ld. AO / Ld. TPO / Hon’ble DRP have erred in taking an inconsistent stand TV 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.
14. The Ld. AO / Ld. TPO / Ld. DRP have erred in making a notional addition on account of interest on perceived delay in collection of receivables from the Associated Enterprises without taking due cognizance of the business model and submissions made by the appellant.
15 The Ld. AO / Ld. TPO / Ld. DRP has erred in making additions on the basis of notional interest by comparing it with SBI PLR ignoring that the said comparison is none of the 5 prescribed methods under the Indian transfer pricing regulations.
16. The Ld. AO / Ld. TPO / Ld. DRP have erred in considering the rate of interest chargeable on receivables at 300 basis points above SBI PLR on June 30, 2009, 14.75%.
17. The Ld. AO / Ld. TPO have erred in fact and in law by considering the arm’s length value of some of the fixed assets imported by the appellant from its associated enterprises during the financial year 2009-10 as Nil, ignoring the valuation arrived by the Custom Authorities.
18. The Ld. AO / Ld. IPO have erred in making addition equivalent to the entire amount of fixed assets imported by the appellant instead of the corresponding depreciation amount.
19. The Ld. AO / Ld. TPO / Hon’ble DRP have erred in ignoring the judicial pronouncements relied upon by the appellant.
20. The Ld. AO has erred in initiating penalty proceedings under section 271(l)(c) of the Act.”
3. Brief facts of the case are that, the assessee Company is incorporated in India on April 1, 2004 and is a part of the Colt Group of Companies (‘Colt Group’) and provides Information Technology Enabled Services (‘ITES’) and contract software development (‘CSD’) solutions to its associated enterprises (‘AEs’). The assessee performs back-end operations in all business areas such as network operations and engineering, IT service provisioning, sales and marketing support, human resources and finance.
4. The assessee company filed its return of income on 29.09.2010 electronically declaring an income of Rs. 18,08,195/- under normal provision of the Act after claiming deduction of Rs. 27,31,51,569/- and book profit declared at Rs. 20,28,16,758/-. The return was processed u/s 143(1) of the Act. Notice u/s 143(2) of the Act was served upon the assessee company. The representative of the assessee has participated and filed necessary details. During the year under consideration the assessee has entered into international transaction with its AE which is stated as under:-
