Itta/421/2015 Of Pr. Commissioner Of Income Tax-2 v. M/S Trinity Advanced Software Labs Private Limited

THE HON’BLE SRI JUSTICE RAMESH RANGANATHANAND THE HON’BLE SRI JUSTICE M.SATYANARAYANA MURTHY I.T.T.A.NO.421 OF 2015 JUDGMENT: {Per the Hon’ble Sri Justice Ramesh Ranganathan} This appeal, under Section 260A of the Income Tax Act, 1961(“the Act” for brevity), is preferred against the order passed by theIncome Tax Appellate Tribunal in M.A.No.136/Hyd/2014 arising out ofI.T.A.No.1129/Hyd/2005 for the assessment year 2002-2003. TheIncome Tax Appellate Tribunal had earlier, in its order inI.T.A.No.1129/Hyd/2005 dated 15.07.2011, held that the ratechargeable by WIPRO could not be compared with the assessee’scase; the assessing officer was required to bring on record acomparable case to determine the price; if the assessing officer wasunable to bring on record a comparable case, he was at liberty toconsider the rate adopted by the assessee in the immediate next yearand he was, thereafter, required to discount the same after consideringthe inflationary rate. The Tribunal further observed that once theassessing authority had arrived at the discounted rate, there was noquestion of giving any further deduction towards any adjustment at5%. The assessing officer was directed to follow the Comparableuncontrolled price method. The respondent-assessee filed an application under Section254(2) of the Act thereafter seeking rectification of the order dated15.07.2011 on the ground that a portion of the direction issued by theTribunal fell foul of Rule 10B(4) of the Income Tax Rules, 1962 (“theRules” for brevity). Rule 10B(4) of the Rules stipulates that the data to be used, inanalysing the comparability of an uncontrolled transaction with aninternational transaction, should be the data relating to the financialyear in which the international transaction has been entered into. The proviso permits the data, relating to a period not more than two yearsprior to such financial year, also to be considered if such data revealedfacts which could have an influence on the determination of thetransfer price in relation to the transactions being compared. The effect of Rule 10B(4) of the Rules and its proviso is that,while ordinarily the data to be used for comparison should relate to thevery same financial year in which the international transaction wasentered into, in certain circumstances the data for two years priorthereto can also be taken into consideration as the basis forcomparison. Rule 10B(4) implicitly prohibits the data, of a subsequentyear, being taking into consideration as the basis of comparison. TheTribunal has, therefore, rightly corrected its order, and had deleted thealternate direction given by it in its earlier order dated 15.07.2011permitting the assessing officer to consider the rate adopted by theassessee in the immediate next year. We find no merit in the submission of Sri B.Narasimha Sarma,the learned Senior Standing Counsel for Income Tax, that the effect ofthe order of rectification is to set at naught the earlier order of theTribunal dated 15.07.2011 in its entirety. The effect of the impugnedorder passed by the Tribunal is only to delete the alternate directiongiven by it permitting the assessing officer to consider the rate adoptedby the assessee in the immediate next year. The said order does notpreclude the assessing officer from taking into consideration any othercomparable transaction following the comparable uncontrolled pricemethod, apart from WIPRO whose comparison has been specificallyrejected by the Tribunal in the order dated 15.07.2011. We find noerror in the order passed by the Tribunal in M.A.No.136/Hyd/2014dated 09.01.2015. No substantial question of law arises in this appealnecessitating our interference under Section 260A of the Act. The appeal fails and is, accordingly, dismissed. There shall beno order as to costs. Miscellaneous petitions, if any, pending shallstand dismissed. 1[st] June 2016RRB ______________________________ (RAMESH RANGANATHAN, J) ___________________________________(M.SATYANARAYANA MURTHY, J)