Conexant Systems Private Limited ... vs Assessee

This appeal filed by the assessee is directed against the Order of learned ACIT, Circle 1(2), Hyderabad (Assessing Officer) dated 05.12.2013 passed under section 143(3) read with the directions given by the Disputes Resolution Panel (DRP) under section 144C (5) of the I.T. Act, 1961.

2. The assessee in the present case is a company which is engaged in design, development and modification services related to providing semi-conductors systems solutions for semi conductor based products. It is also engaged in a board development (testing) which is inter-related and inter-connected with software development/designing of chips. Prior to 01.04.2006 it was known as Conexant Systems (PB) P. Ltd., Pune. It was wholly owned subsidiary of Paxonet Systems 2 ITA.No.161/Hyd/2014 Conexant Systems P. Ltd., Hyderabad.

Inc. USA and there were two other subsidiaries viz., Conexant Systems Noida P. Ltd., Noida and Conexant Systems India P. Ltd., Hyderabad. Pursuant to the scheme of amalgamation all these three companies got merged into one company having its registered office at Hyderabad. Prior to amalgamation, Conexant India (PB) Ltd., filed its return of income for the year under consideration in Pune on 29.11.2006 declaring total income of Rs.28,690. Since the assessee had entered into international transactions with its AEs during the year under consideration i.e., A.Y. 2006-07, a reference during the course of assessment proceedings was made by the A.O. to the TPO for determining the arms length price of the said international transactions. In his report submitted to the Assessing Officer, T.P. adjustments of Rs.1.88 crores was worked by the TPO and accordingly, addition of Rs.1.88 crores was proposed by the A.O. in the draft assessment order dated 28.10.2010. The assessee approached the DRP raising various objections in respect of the draft assessment order proposed by the A.O. One of such objections raised by the assessee was that in the absence of notice under section 143(2) served by the A.O. on it within the statutory time limit, the entire assessment proceedings were void abinitio. The DRP found this objection of the assessee to be sustainable and directed the A.O. to verify from the relevant record of the factual position as regards the service of notice under section 143(2). On verification, the A.O. apparently found the claim of the assessee to be correct and dropped the proceedings initiated by him by issuing a notice under section 143(2) as the said notice was not served on the assessee within the statutory time limit. He, however, initiated re-assessment proceedings and issued a notice under section 148 to the assessee. Thereafter, the case of the assessee was transferred to Hyderabad after the merger of all the three 3 ITA.No.161/Hyd/2014 Conexant Systems P. Ltd., Hyderabad.

subsidiaries and a fresh reference was made by the A.O. i.e., ACIT, Circle (1), Hyderabad to the TPO for determining the arms length price of the international transactions of the assessee company with its AEs. Accordingly, the TPO vide his order dated 28.12.2012 passed under section 92CA(3) of the Act, determined the arms length price of the relevant international transactions of the assessee company with its AE at Rs.26,15,50,020 as against the price of Rs.24,24,52,978 charged by the assessee and worked out the TP adjustment to be made in the case of the assessee at Rs.1,90,97,040.

2.1. In the draft assessment order dated 28.02.2013 the A.O. proposed to make addition of Rs.1,90,97,042 on account of T.P. adjustment worked out by the TPO. He also proposed a further addition of Rs.16,34,950 and Rs.34,52,446 by restricting the claim of the assessee for deduction under section 10A in respect of Pune unit and Bangalore unit respectively on account of reduction of communication charges from the export turnover. Against the draft assessment order dated 28.02.2013 proposed by the A.O. objections were again filed by the assessee before the DRP challenging the validity of the re-assessment proceedings as well as disputing the additions proposed by the A.O. on merit. The DRP considered the objections of the assessee only in respect of additions proposed by the A.O. on merit and on such considerations, directed the A.O. not to make any addition on account of disallowance of assessee's claim of deduction under section 10A in respect of Pune as well as Bangalore unit. The objection of the assessee in respect of the addition of Rs.1,90,97,042 on account of T.P. adjustment however was not found to be sustainable by the DRP. Pursuant to the directions given by the DRP under section 144C(5) of the Act vide order dated 4 ITA.No.161/Hyd/2014 Conexant Systems P. Ltd., Hyderabad.

21.11.2013, the A.O. passed a final order under section 143(3) on 05.12.2013 making addition to the total income of the assessee only on account of T.P. adjustment. Aggrieved by the order of the A.O., the assessee has filed this appeal before the Tribunal.

3. We have heard the arguments of both the sides and also perused the material on record. In the grounds raised in this appeal, the assessee has challenged the validity of assessment made by the A.O. as well as the addition made therein on account of T.P. adjustment on merit. In respect of the preliminary issue raised in this appeal by the assessee challenging the validity of the assessment made by the Assessing Officer, the Ld. Counsel for the assessee has invited our attention to the copy of reasons recorded by the A.O. placed at page nos. 161 and 162 of the paper book. He has pointed that the assessment for the year under consideration was reopened by the A.O. on the basis of TPO's order dated 30.10.2009 proposing T.P. adjustment of Rs.1.88 crores and disallowance of assessee's claim of deduction under section 10A to the extent of Rs.3.17 crores. He has contended that no disallowance under section 10A however having been made by the A.O. in the final order as per the DRP direction and the reference made to the TPO in the original assessment proceedings itself being invalid as the said assessment proceedings were held to be void abinitio in the absence of service of notice under section 143(2) on the assessee within the statutory time limit, the reopening of assessment by the A.O. itself is invalid. In support of this contention, he has relied on the decision of the Pune Bench of ITAT in the case of Maximize Learning Private Limited vs. ACIT, Circle 11(2), Pune ITA.No.2234/PN/2012 dated 02.02.2015. Although, it appears 5 ITA.No.161/Hyd/2014 Conexant Systems P. Ltd., Hyderabad.

from the said order of the Pune Bench of this Tribunal that a similar issue involving identical facts has been decided by the Tribunal in favour of the assessee, it is observed that the DRP in the case of the assessee has not decided this preliminary issue vide its order dated 21.11.2013 in spite of the fact that the same was specifically and separately raised by the assessee in the objections filed before the DRP. We, therefore, consider it fair and proper and in the interest of justice to set aside the impugned order passed by the A.O. under section 143(3) as per the directions issued by the DRP under section 144C(5) of the Act and restore the matter to the file of the DRP for the limited purpose of deciding the preliminary issue raised by the assessee company in its cross objections challenging the validity of the assessment. As this issue, which is being restored to the file of DRP, goes to the root of the matter, we keep the other issue raised by the assessee challenging the addition made on account of T.P. adjustment open with a liberty to the assessee to raise the same again if it fails to succeed on the preliminary issue before the DRP.

4. In the result, appeal of the assessee is treated as allowed for statistical purposes.

Order pronounced in the open Court on 11.03.2015.

Sd/- Sd/- (ASHA VIJAYARAGHAVAN) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER

Hyderabad, Dated 11th March, 2015

VBP/- 6

ITA.No.161/Hyd/2014 Conexant Systems P. Ltd., Hyderabad.

Copy to

1. Conexant Systems P. Ltd., (Formerly known as Conexant Systems (PB) P. Ltd.,) 5th Floor, Pioneer Towers, Plot 16, Sl.No.64/2, Software Units Layout, Madhapur, Hyderabad - 500 081.

2. Assistant Commissioner of Income Tax, Circle 1(2), Hyderabad.

3. Disputes Resolution Panel, 2nd Floor, Income Tax Towers, 10-2-3, A.C. Guards, Hyderabad - 500 004.

4. Commissioner of Income Tax-IV & Member DRP, Hyderabad.

5. CIT(A)-I, & Member, DRP, Hyderabad

6. The Director of Income Tax, International Taxation, Income Tax Towers, 10-2-3, A.C. Guards, Hyderabad - 500 004.

7. Dy. Commissioner of Income Tax (Transfer Pricing)-II, Hyderabad - 500 004.

8. D.R. I.T.A.T. "A" Bench, Hyderabad.