2016 (5) TMI 715 - AT - Income Tax

Reopening of assessment - Held that - The series of reassessment proceedings were initiated by the AO on the back drop of Satyam episode without applying mind or without cogent evidence on record. It was done mechanically, as it is evident from the fact that the earlier years reopening assessments were dismissed by the coordinate bench of this Tribunal. Moreover, the findings and conclusion drawn in the final assessment orders are nothing but same findings of the AO in the original assessment order. Merely certain enhancement were made on the same findings gives the impression that this is only change of opinion rather than escapement of income, which warranted AO to reopen the assessment. We observe that this is merely change of opinion by referring to the chart which highlights the final outcome of the reassessment proceeding. Hence, considering the above findings, we quash the order passed by the AO. Determination of interest on receivables which assessee was failed to report in the form 3CEB - Held that - Assessee has not charged any interest to AE as well as non-AE entities. Moreover, the TPO has considered only the account receivable of AE without considering the account payable to AEs. It is pertinent to note that account payable to AE and its affiliates are ₹ 28,58,98,204 compared to account receivables from AE and its affiliates of ₹ 26,88,97,856. We find that the account payables are more than the account receivables from AE. Hence, charging of notional interest does not arise. Therefore, we are inclined to remit the issue back to the file of DRP to give their findings clearly in this matter after going through the material available on record and give their findings according to the provisions of the Income-tax Act.

Summary

Issues Involved:
1. Reopening of assessment under Section 147.
2. Transfer Pricing Adjustments.
3. Non-Transfer Pricing Additions.
4. Notional Interest on Receivables.

Detailed Analysis:

1. Reopening of Assessment under Section 147:
The Assessee challenged the reopening of assessment for AY 2005-06, arguing that the reasons for reopening were identical to those in earlier years, which were quashed by the Tribunal. The reasons included:
- ALP for commission paid to Venture Global should be NIL.
- Dispute between Satyam Computer Services Ltd. and Venture Global regarding administrative charges.
- Satyam Computer Services Ltd. books being fudged.

The Tribunal found that the reassessment proceedings were initiated without new findings and were based on the same grounds as the original assessment, indicating a mere change of opinion rather than actual escapement of income. The Tribunal quashed the reassessment order, stating it was done mechanically and without cogent evidence.

2. Transfer Pricing Adjustments:
The Assessee contested the Transfer Pricing adjustment of Rs. 3,23,99,937, arguing that the AO/TPO/DRP erred in determining the arm's length price for sales commission and engineering services. The Tribunal noted that the reassessment proceedings did not bring any new evidence or findings to justify the adjustments, and the reasons for reopening did not survive scrutiny. Consequently, the Tribunal quashed the reassessment order, rendering the grounds related to transfer pricing adjustments infructuous.

3. Non-Transfer Pricing Additions:
The Assessee also challenged the disallowance of exemption under Section 10A and other non-transfer pricing additions. The Tribunal did not specifically adjudicate these grounds, as the reassessment proceedings were quashed, making these grounds infructuous.

4. Notional Interest on Receivables:
For AY 2010-11, the dispute centered on the TPO's determination of notional interest on receivables from AE transactions. The DRP directed the TPO to consider total dues/receivables, excluding those from Indian associates. However, the AO completed the assessment without clear directions from the DRP. The Tribunal found that the TPO had only considered account receivables without considering account payables, which exceeded the receivables. The Tribunal remitted the issue back to the DRP for clear findings, noting that charging notional interest did not arise as the payables were more than the receivables.

Conclusion:
- The appeal for AY 2005-06 (ITA No. 431/H/15) was allowed, quashing the reassessment proceedings.
- The appeal for AY 2010-11 (ITA No. 432/H/15) was allowed for statistical purposes, remitting the issue of notional interest on receivables back to the DRP for clear findings.