TMI Blog2022 (10) TMI 413X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. The final assessment order has dispatch seal also. There is nothing on record to show that the final assessment order has not been dispatched on the said date. The demand was uploaded to CPC portal on 13.03.2017, so the CPC shows the date as the date of order. The CPC will always show the date on which the demand is fed into. The entire order is not uploaded, but only the demand was uploaded in the CPC. For the aforesaid reasons, we reject grounds 1 to 3 raised by the assessee. DRP directed the TPO to recompute the margins of the assessee as well as the comparables to its SWD and ITE service segments after treating such foreign exchange gain / loss as operating in nature - A bare perusal of the adjustment proposed in the draft assessment order, and the adjustment that has ultimately been incorporated in the final assessment order are one and the same. Thus, it is wholly apparent that the final assessment order is, to the extent, not in conformity with the DRP s directions and is, therefore, illegal. As per section 144C(10) of the I.T.Act, every directions issued by the DRP is binding on the A.O. Further, section 144C(13) of the I.T.Act mandates that the A.O. shall complete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is directed against final assessment order dated 24.01.2017 passed u/s 143(3) r.w.s. 144C(13) of the I.T.Act. The relevant assessment year is 2012-2013. 2. The issues raised in the appeal are as follows:- (i) Validity of the impugned final assessment order; (ii) Transfer pricing (TP) adjustment of Rs.26,85,43,457 made by the Transfer Pricing Officer (TPO) towards the international transactions of provision of contrct Software Development and Information Technology Enabled Services to the assessee s Associated Enterprises (AEs); (iii) Addition of Rs.7,62,39,388 being the alleged suppressed income of the assessee; and (iv) Non-grant of depreciation on certain expenses incurred in earlier years and held to be capital in nature in such years. 3. The brief facts of the case are as follows: The assessee is a company engaged in the business of provision of contract Software Development (SWD) services and Information Technology Enabled (ITE) services to its AEs as a captive service provider. The assessee is a subsidiary of VMware International Limited, Ireland, which in turn is an affiliate of VMWare Inc. US. During the previous year relevant to the assessment year 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty Commissioner of Income Tax, Circle 7(1)(2), Bangalore ( learned Assessing Officer ) is voidab- initio and hence liable to be quashed. 2. That the final assessment order is passed beyond the time period prescribed under section 143(3) read with section 144C(13) of the Act and is therefore not in conformity with the provisions of section 144C(13) the Act and hence bad in law. 3. That the notings of the learned Assessing Officer, that the final assessment order was collected by the Appellant in person on 24 January 2017 and that the final assessment order was posted to the Appellant via speed post on 28 March 2016 are erroneous. Grounds of appeal relating to Corporate Tax matters 4. On the facts and in the circumstances of the case and in law, the learned Dispute Resolution Panel - 2, Bangalore ( DRP ) erred in confirming the action of the learned Assessing Officer by rejecting the audit adjustments made in the financial statements amounting to INR 7,62,39,388 and thereby adding back the same to the taxable income as suppression of income. 5. That the DRP erred in not adjudicating on the ground that the action the learned Assessing Officer resulted in doub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvertisement and marketing 3%, negative net worth filters and related party transaction; 12. On the facts and circumstances of the case, the learned Assessing Officer in pursuance of the directions of the learned Panel erred in concluding that there is no correlation between the operating mark-up on cost earned and the turnover of a company (effect of economies of scale) .Accordingly, the learned Assessing Officer erred in not -rejecting companies based on their turnover; 13. On the facts and circumstances of the case, the learned Assessing Officer in pursuance of the directions of the learned Panel erred in upholding the rejection of comparable companies considered in the TP documentation with respect to software development service (viz. Helios and Matheson Information Technology Limited, IDBI Intech Ltd, Allied Digital Services Ltd.) and information technology enabled services (viz. Cameo Corporate Services Ltd, In-House Productions Ltd. etc.), which are functionally comparable with the service rendered by the Appellant; 14. On the facts and circumstances of the case, the learned Assessing Officer in pursuance of the directions of the learned Panel erred in excl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stent Systems Ltd., and Sasken Communication Tech Ltd.) that are functionally dissimilar to the Appellant and otherwise fail the test of comparability and filters as applied by the learned TPO. 20. That the learned AO has erred in computing interest under section 234B of the Act amounting to INR 7,02,13,338. 6. The assessee has filed multiple paper books enclosing therein the TP study, the objections raised before the DRP, communications between the assessee and the Revenue, the financials of the assessee and the comparables, etc. The learned AR has also filed a brief written submission. The assessee has raised grounds on legal issues and also on merits. As regards the legal issue is concerned, the learned AR submitted that the final assessment order has not been passed within the time prescribed u/s 144C(13) of the I.T.Act, and therefore, the same is barred by limitation and thus void ab initio. In this context, the learned AR submitted that there is nothing on record to suggest that the final assessment order (though dated 24.01.2017), was dispatched within the time limit prescribed u/s 144C(13) of the I.T.Act so as to be beyond the control of the A.O. It was stated tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e final assessment order had discussed the directions given by the DRP and incorporated the enhancement on alleged suppression of income in line with DRP s direction. Therefore, it was submitted that the final assessment passed u/s 143(3) r.w.s. 144C(13) of the I.T.Act was pursuant to the directions of the DRP. 9. We have heard rival submissions and perused the material on record. The DRP s directions is dated 23.12.2016. As per section 144C(13) of the I.T.Act, the A.O. has to pass the final assessment order within one month from the end of the month in which such direction of the DRP is received by him. In the instant case, the final assessment order is dated 24.01.2017 (i.e., well within the time limit contemplated u/s 144C(13) of the I.T.Act). However, the learned AR contends that the final assessment order is not dispatched within the time limit prescribed, therefore, the final assessment order is barred by limitation. The above contention is raised for the reason that (i) the assessee received the final assessment order only on 15.09.2017, (ii) the assessee received the intimation from CPC (about the demand raised) which mentions that the date of the order is 13.03.2017). T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned AR is with regard to ground 17. In the above ground, it is submitted that the final assessment order is not in conformity with the directions of the DRP, and therefore, void. The learned AR relied on the following judicial pronouncements:- (i) Flextronics Technologies (India) Private Limited v. ACIT [IT(TP)A No.832/Bang/2017 (order dated 31.12.2018)] (ii) July Systems Technologies Pvt. Ltd. v. DCIT [IT(TP)A No.368/Bang/2016 (order dated 31.10.2018)] (iii) Software Paradigms Infotech Pvt. Ltd. v. ACIT [IT(TP)A No.150/Bang/2014 (order dated 05.01.2018)] (iv) Xchnging Solutions Limited v. DCIT [IT(TP)A No.2664/Bang/2017 (order dated 21.12.2020)] (v) Yokogawa India Ltd. v. ACIT [IT(TP)A No.1715 692/Bang/2016 (order dated 08.03.2021)] (vi) ESS Distribution (Mauritius) S.N.C. ET Compagnie v. Union of India [WP(C) No.2384/2015 CM No.4277/2015 (judgment dated 23.03.2016)] (vii) Basware Corporation India v. DCIT [ITA No.1289/Chd/2019 (order dated 27.11.2019)] (viii) Global One India Pvt. Ltd. v. DCIT [ITA No.1980/Del/ 2014 (order dated 10.12.2019)] (ix) Olympus Medical Systems Pvt. Ltd. v. ACIT [ITA No.873/Del/2021 (order dated 13.01.2022)] (x) Nom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustment made in the final assessment order, which is not in conformity with the DRP s directions. In taking the above view, we are fortified by the judicial pronouncements referred supra at para 10. Since we have deleted the TP adjustment incorporated in the final assessment order, the specific grounds with regard to TP adjustment on merits is not adjudicated. Grounds 4 and 5 (Corporate Tax Issues) 13. In the above ground, the assessee is challenging the action of the AO in making an addition of Rs.6,44,37,710, which was enhanced to Rs.7,62,39,388 pursuant to the DRP s directions. The addition was made on the basis that the same represented suppressed income relatable to the difference in the assessee s revenues as per the invoices raised by it vis- vis its financial statements. 14. The learned AR submitted that in terms of the Master Service Agreement, it enters into with its group companies for rendering captive SWD, IT and marketing support services. It was stated that the assessee works on a cost plus model wherein its invoices are raised based on the cost incurred by it after adding a certain agreed percentage of mark-up to the same. It was stated that such in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT enabled services (Rs.) Marketing support services (Rs.) Total (Rs.) Employee cost 1,07,89,77,761 79,63,64,012 23,51,18,949 2,11,04,60,722 Administrative cost 33,61,51,570 36,28,43,640 6,88,23,568 76,78,18,778 Depreciation 18,92,65,484 14,75,79,667 5,83,197 33,74,28,348 Total cost 1,60,43,94,815 1,30,67,87,319 30,45,25,714 3,21,57,07,848 Add:Mark up 20,85,71,326 20,90,85,970 2,43,62,057 44,20,19,353 Revenue 1,81,29,66,141 1,51,58,73,289 32,88,87,771 3,65,77,27,201 Less : Foreign exchange gain 4,01,89,930 1,87,52,892 -- 5,89,42,822 Less : Adju ..... X X X X Extracts X X X X X X X X Extracts X X X X
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