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2015 (7) TMI 470 - AT - Income TaxRevision u/s 263 - TPO allowed commission while passing orders under sec. 92CA(3) - Held that - CIT erred in holding that in the absence of section 92CA(4) during the relevant period, it is not binding on the AO to follow the order of TPO. The order of CIT is contrary to the CBDT instruction No.3 of 2003 wherein it is clarified that the AO has to compute the total income of the assessee having regard to the arms length price so determined by TPO. CIT ought not to have assumed jurisdiction u/s 263 of the Act in as much as it is merely a change of opinion. We rely on the decision of Malabar Industrial Co Ltd. Vs. CIT 2000 (2) TMI 10 - SUPREME Court . Even assuming that the enquiries made by the Assessing Officer are inadequate, the jurisdiction under Sec. 263 of Income Tax Act, 1961 cannot be assumed as it was only in the cases of lack of enquiries that the jurisdiction under Sec. 263 of Income Tax Act, 1961 can be assumed.In the present case before us the TPO and the Assessing Officer had applied their mind and allowed the entire commission while passing orders under sec. 92CA(3) and 143(3) respectively as claimed by the assessee. Hence we annul the order of CIT passed under sec.263. - Decided in favour of assessee. Transfer pricing adjustment - Disallowance by the AO on the basis of arm s length price of I.T. Engineering services worked out by the TPO i.e. Add. CIT, Transfer Pricing, Hyderabad vide his order u/s 92CA - main emphasis of the assessee is that the General Motors was a new customer during financial year 2002-03 and the initial services were provided on higher rate, on a trial basis. Further the rates between Venture USA Germany and General Motors should not be compared without making suitable adjustment towards the volume of business as the working hours provided to AE is 40 times more than the hours billed to M/s General Motors - Held that - CIT (A) has justified the deduction of 5% from the adjusted rate adopted by the TPO while determining the ALP by stating that no assessee will charge a rate which is at great variance with the normal market rate of the services provided considering the fact that it was a new client who whom the assessee will try to get more business in future. Hence the CIT observed that despite less transactions, the rates charged by the assessee in case of new client. Therefore, the CIT had rightly directed for an adjustment of account difference in the rate under the TP provisions worked @ US 9 per hour. The grievance of the assessee that suitable adjustment have to be made to bring the prices to a comparable level has been satisfied by the CIT (A) by giving a reduction of 5%. The CIT (A) was of the opinion that the reduction of 5% is sufficient with respect to the facts of the case, we also confirm. The ground of the Department that once CUP method is adopted, no adjustment is possible is incorrect and the CIT (A) has given sufficient adjustment of deduction at 5% from the adjusted rates adopted by the TPO ( 50.52 (-) @ 2.52) while determining the ALP, considered the facts and circumstances of the case. We confirm the order of the CIT (A). - Decided against assessee and revenue. Reopening of assessment - Addition made by disallowing a portion of the deduction U/s.I0A arises on account of adjustment to the export turnover - Held that - The AO proceeded to assess the income by issuing a normal questionnaire seeking information from the assessee. He had not issued any specific letter seeking clarification on issues which prompted him to reopen the assessment. He issued show cause notice why the export turnover should not be reduced with respect to the expenditure in foreign currency. In the entire proceedings U/s.143(3) r.w.s 147, the AO had not asked any question or information connecting with the reason for reopening. On the facts and in the circumstances of the case, the AO erred in law and facts of the case in reopening the assessment u/s 147 of the I.T. Act, 1961 after having assessed and re-assessed u/s 143(3) and section 263. Since we have decided the jurisdictional grounds in favour of the assessee, we are not adjudicating on the other grounds of appeal raised before us. - Decided in favour of assessee. Validity of reopening U/s.147 - Assessing Officer reopened the assessment under section 147 beyond the period of four years - Held that - There is no fresh fact or tangible material to come to the conclusion that there is escapement of income from assessment. The entire joint venture agreement understanding between the parties and consideration for making the payment was put forth before the TPO and the AO at the time of original assessment. Since reasons recorded also do not have any link with the formation of belief. In the present case before us the statement of Ramalinga Raju has no connection with the subsidiary of Satyam Group i.e. Satyam Venture Engineering Services, Hyderabad (Assessee herein). - Decided in favour of assessee.
Issues Involved:
1. Validity of the revision order under Section 263 of the Income Tax Act, 1961. 2. Determination of Arm's Length Price (ALP) for sales commission and IT engineering services. 3. Validity of reopening assessments under Section 147 of the Income Tax Act, 1961. 4. Adjustment of export turnover for the purpose of Section 10A exemption. Issue-wise Detailed Analysis: 1. Validity of the Revision Order under Section 263: The CIT revised the assessment made by the AO, deeming it erroneous and prejudicial to the interest of the Revenue. The CIT held that the payment of 10% sales commission to Venture Global on sales made to Satyam Computer Services Ltd (SCSL) was not justified. The CIT argued that the TPO's order was not binding on the AO before the amendment of Section 92CA(4) effective from 1.6.2007. The CIT directed the AO to re-evaluate the commission using the most appropriate method for determining ALP. However, the Tribunal found that the CIT's order was contrary to CBDT Instruction No.3 of 2003, which clarified that the AO must compute total income considering the ALP determined by the TPO. The Tribunal annulled the CIT's order, stating it was merely a change of opinion and not a case of lack of inquiries. 2. Determination of Arm's Length Price (ALP): The TPO had allowed the entire commission paid to Venture Global, but the CIT disagreed, leading to revision proceedings. The Tribunal noted that the TPO had accepted the commission based on the Comparable Uncontrolled Price (CUP) method and that this acceptance had been upheld by appellate authorities. The Tribunal concluded that the CIT's direction to follow the TPO's order for a subsequent year was not justified, as the method of commercial expediency adopted by the TPO for A.Y 2004-05 had been struck down by appellate authorities. 3. Validity of Reopening Assessments under Section 147: The AO reopened assessments for various years based on the statement by Mr. Ramalinga Raju, Chairman of Satyam Computer Services Ltd, which indicated financial irregularities. The Tribunal found that the reasons for reopening were vague and not based on tangible material. The Tribunal emphasized that the reasons must have a live link with the formation of the belief of income escapement. The Tribunal relied on the decision in Ranjit Reddy vs. Dy. CIT, which held that reopening assessments based on mere change of opinion or without tangible material is invalid. Consequently, the Tribunal quashed the reopening of assessments for A.Y 2002-03, 2003-04, and 2004-05. 4. Adjustment of Export Turnover for Section 10A Exemption: The AO had adjusted the export turnover by excluding certain expenditures incurred in foreign currency, thereby reducing the Section 10A exemption. The Tribunal noted that the AO's adjustments were not part of the reasons for reopening the assessment. The Tribunal held that adjustments to the export turnover should also result in adjustments to the total turnover, in line with settled legal positions. The Tribunal allowed the appeals of the assessee, canceling the AO's orders. Summary of Decisions: - ITA No.492/Hyd/2008 (Assessee) for A.Y 2003-04: Allowed - ITA No.196/Hyd/2008 (Assessee) for A.Y 2003-04: Allowed - ITA No.783/Hyd/2008 (Revenue) for A.Y 2003-04: Dismissed - ITA No.924/Hyd/2008 (Assessee) for A.Y 2003-04: Dismissed - ITA No.1136/Hyd/2013 (Assessee) for A.Y 2003-04: Allowed - ITA No.1137/Hyd/2013 (Assessee) for A.Y 2004-05: Allowed - ITA No.1904/Hyd/2011 (Assessee) for A.Y 2002-03: Allowed
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