Delhi High Court grants partial relief to Microsoft India in Income Tax case

Delhi High Court grants partial relief to Microsoft India in Income Tax case

The Delhi High Court (HC) granted partial relief to Microsoft India (R&D) Pvt. Ltd. (Assessee) held that the remand is not a power to be exercised by the Income Tax Appellant Tribunal (ITAT)and it should be used in exceptional cases only

The Coram consisting of Justices Sanjeev Narula and Manmohan, held that when the requisite materials and the intervening decision of the jurisdictional HC was available for deciding the issue urged by the Assessee, the ITAT ought to have concluded rather than remanding the matter back to the Assessing Officer (AO).

Microsoft India (R&D) Pvt. Ltd. (Assessee) - a - private limited company was set up in May 1998, in India and it is a subsidiary of Microsoft Ireland Research Ltd. (99.99% shareholding), the ultimate parent company is Microsoft Corporation, USA.

The Assessee has been engaged in rendering software development services and information technology-enabled services. It filed its return of income on 29 November 2011, declaring an income of Rs. 2,01,64,26,819/- and same was processed under Section 143(1) of the Income Tax Act, 1961 (IT Act).

The facts of the case are that the case of the Assessee was selected for scrutiny assessment and notice under Section 143(2) was issued to them. An Audit Report in Form No. 3CEB declaring six international transactions was filed by the assessee.

Its case was selected for scrutiny and the AO referred the matter to the Transfer Pricing Officer (TPO) for determination of Arm's Length Price (ALP) of the international transactions. The TPO proposed a transfer pricing adjustment of Rs. 2,40,89,61,667/- (being Rs. 2,01,21,96,582/- towards Software development services and Rs. 39,67,65,085/- towards provision of IT-enabled services). The draft order under Section 144C was framed by the AO.

The Assessee filed its objections before the Dispute Resolution Panel of the Income Tax Act (DRP) being aggrieved above order. DRP disposed of the said objections raised by the Assessee with certain directions.

Accordingly, pursuant to the order of the DRP, the final assessment order under Section 143(3)/144C was framed by the AO on 16 January 2016, determining the total taxable income at Rs. 4,37,47,44,593/-.

The Assessee preferred an appeal against the assessment order before the ITAT. The appeal was disposed of by the ITAT vide the Impugned order dated 14 September 2018.

The Assessee and the Revenue Department, both filed appeals before the HC against the order of the ITAT. On behalf of the assessee it was submitted that the ITAT has erred in restoring for adjudication, the questions of law to the file of the AO, thereby allowing him a second inning on a topic which both the AO and the DRP have already considered.

The HC stated, "The appeals, one preferred by the Revenue (being ITA No. 652/2019) and the other preferred by the Assessee (being ITA No. 710/2019) assail the order dated 21 January 2019 passed by the learned ITAT in ITA No. 507/DEL/2017 for AY 2012-13.

This, in turn, had arisen from an assessment order of the AO dated 24 November 2016. The ITAT, in its adjudication, followed its own order dated 14 September 2018 for Assessment Year (AY) 2011-12. The questions of law and the contentions urged by the Revenue are identical to those raised in respect of AY 2011-12. We are not inclined to entertain the appeal of the revenue department, as no question of law, much less a substantial question of law, arises for our consideration."

The HC while partly allowing the appeal of the assessee directed the ITAT to take up and decide the corporate tax grounds urged by the Assessee in its appeals. The appeal of the Assessee is restored to the file of the ITAT for the AY 2011-12 to a limited extent.