Innodata Isogen Pvt. Ltd., New Delhi vs Assessee

Appellant by : Shri Ajay Vohra Sr. Adv. Ms. Lalita Krishnamurthy CA Sh. R. Katyal CA Ms. Mehak Gupta Adv. Sh. R. Balasubramanian CA Respondent by : Shri Judy James Standing Counsel

Date of hearing : 10/04-2015 Date of order : 17-04-2015.

ORDER

PER S.V. MEHROTRA, A.M:-

This appeal, preferred by the assessee, is directed against the assessment order dated 13-10-2010, passed u/s 143(3) read with section 144C(3) of the I.T. Act, 1961. Following grounds are raised:

1. That the learned Assessing Officer had erred in determining the total income at Rs.2,77,35,851/- as against the correct determination ofRs.l,15,182.

2. The calculations of tax alleged to be due by the appellant are wrong and the notice of demand under section 156 of the 2 ITA 5785/Del/2010 Innodata Isogen Pvt. Ltd.

Income-tax Act, 1961 dated 13.10.2010 and the Income tax computation in Form I1NS 150 creating the sum payable at Rs.l,43,64,088 (including interest of Rs.50,20,912 under section 234 B, Rs.46,060 being withdrawal of interest under section 234D) is wrong.

3. That the addition of Rs.2,76,20,669 as made by the Assessing Officer under section 92CA(1) of the Income Tax Act, 1961 on the basis of directions of the TPO read with the directions of Dispute Resolution Panel (DRP) issued under Section 144C (5) of the Income Tax Act, 1961, is arbitrary, unjust, based on irrelevant material and at any rate excessive.

4. That the lower authorities had erred in holding that the application of current year financial data to determine the assessable profit on the international transaction is mandatory and consequently the addition of Rs.2,76,20,669 based on the order of TPO read with the directions of DRP issued under Section 144C (5) of the Income Tax Act, 1961 is arbitrary, unjust and unsustainable in law.

5. That the lower authorities had erred in holding that the multiple year data is not appropriate for Bench Marking International Transactions and consequently the addition of Rs.2,76,20,699 made by the Assessing Officer in accordance with the order of the TPO read with the directions of DRP issued under Section 144C (5) of the Income Tax Act, 1961 thereby applying the operating profit margin of 19.74% is arbitrary, unjust, based on irrelevant material, not sustainable under the law and at any rate excessive.

6. That the action of the lower authorities in not following the Multiple Year Data of the two preceding years and then making the addition of Rs.2,76,20,699 is arbitrary, against the principle of consistency and not sustainable in law.

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7. That the Assessing Officer erred on facts and in law in charging interest under section 234B, 234D of the Act.

8. The appellant craves leave to add, alter, amend, or vary the above grounds of appeal at or before the time of hearing".

2. Brief facts of the case are that the asesssee company, in the relevant year was engaged in the business of purchase of computer and communication related peripherals. The assessee company was founded in 1988 and is a worldwide solution-driven company in the vanguard of the digital export of computer software revolution with advanced technology as its mainspring.

2.1. The assessee company had entered into following international transactions. The summary of economic analysis of assessee company is as under:

Nature of International Method Selected Profit level indicator Innodata Comparable Transaction India's Results Results.

- Provision of Transactional Operating profit/ 9% 8% IT enabled Net Margin Total cost services Method (OP/TC) - Purchase of (TNMM) software

2.2. The TPO accepted the TNMM method selected by the assessee and also the PLI being operating profit/ total cost as the bench marking of the international transctions. The assessee selected a total of 22 companies in respect of Innodata India's provision of IT enabled back-office services activity, the PLI in respect of which worked out to 8%.

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2.3. The assessee had considered multiple year data in respect of comparables and took average of the same. However, TPO considered only the current year's data. The TPO had rejected some of the comparables selected by assessee, which were loss making and also on certain other counts. The assessee filed objections before ld. DRP, inter alia, for inclusion of following comparables:

- Ask Me Info Hub Ltd. (Shreejal Info Hubs Ltd.);

- CMC Ltd.

- Hypersoft Technologies Ltd.

- MCS Ltd.

- Mapro Industries Ltd.

- Tata Services Ltd.

2.4. The ld. DRP while disposing of the assessee's objections, held as under:

"We have gone through the detailed submissions made by the AR. We find that the TPO has discussed the various objections raised by the AR on this issue in para 7 of the order. In short the TPO has rejected the various comparables on the grounds such as (a) functional dissimilarity (b) RPT being more than 40% (c) persistent loss making companies(d) negative networth (e) providing services on no profit no loss basis. The panel is of the view that the TPO has given valid reasons in rejecting these comparables after detail discussion in the draft order. Hence the objections raised by the assessee are rejected."

Aggrieved, the assessee is in appeal before us.

3. Ld. counsel for the assessee submitted that the learned DRP dismissed the assessee's objections regarding rejection of comparables selected by the assessee without assigning any reason. Therefore, the matter may be restored to the file of DRP with a direction to decide the issue by passing a reasoned order.

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4. Having heard both the parties and going through the material available on record, we find force in the contention of the learned counsel for the assessee. From the directions of ld. DRP, we find that the ld. Panel has simply rejected the assessee's objections without assigning any reason. The order of the learned DRP on this issue being a non-speaking order, the assessment order passed in pursuance thereto cannot stand in the eye of law. Accordingly, we set aside the order of ld. DRP on this issue and restore the matter to the file of the ld. DRP to pass a reasoned order in accordance with law, after affording reasonable opportunity of being heard to the assessee. We order accordingly.

5. In the result, assessee's appeal is allowed for statistical purposes. Order pronounced in open court on 17-04-2015.

Sd/- Sd/- (A.T. VARKEY ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 17-04-2015. MP: Copy to : 1. Assessee 2. AO 3. CIT 4. CIT(A) 5. DR