IN INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA No.556/Mds/2015 Assessment Year : 2010-11 Deputy Commissioner of M/s Sensiple Software Solution Income Tax, v. Pvt. Ltd., Corporate Circle 6(1), C/o S. Venkatram & Co., Chennai - 600 034. Chartered Accountants, 218, TTK Road, Alwarpet, Chennai - 600 018. PAN : AAGCS 4619 C (Appellant) ( Respondent) ITA No.600/Mds/2015 Assessment Year : 2010-11 M/s Sensiple Software Solution Deputy Commissioner of Pvt. Ltd., v. Income Tax, C/o S. Venkatram & Co., Corporate Circle 6(1), Chartered Accountants, Chennai - 600 034. 218, TTK Road, Alwarpet, Chennai - 600 018. ( Appellant) (Respondent) Assessee by : Shri A.B. Maurya, CIT Revenue by : Shri G. Seetharaman, CA Date of Hearing : 30.08.2016 Date of Pronouncement : 07.10.2016 2 I.T.A. No.556 & 600/Mds/15 O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: Both appeals of Revenue and assessee are directed against same order of Assessing Officer, consequent to directions of Dispute Resolution Panel. Therefore, we heard both appeals together and disposing of same by this common order. 2. Let s first take Revenue s appeal in I.T.A. No.556/Mds/2015. only issue arises for consideration is exclusion of foreign currency expenses said to be incurred by assessee towards internet expenses and foreign travel expenses. 3. Shri A.B. Maurya, Ld. Departmental Representative, submitted that Assessing Officer excluded foreign currency expenses from export turnover. However, same was not excluded from total turnover. Therefore, Dispute Resolution Panel, by placing reliance on Special Bench of this Tribunal in CIT v. Sak Soft Ltd. [313 ITR (AT) 353], directed Assessing Officer to exclude foreign currency expenses towards internet and travel expenses from total turnover also. According to Ld. D.R., Revenue has already filed appeal before High 3 I.T.A. No.556 & 600/Mds/15 Court against decision of this Tribunal in Sak Soft Ltd. (supra). Therefore, DRP is not justified in directing Assessing Officer to exclude foreign currency expenses from total turnover also. 4. We have heard Shri G. Seetharaman, Ld. representative for assessee also. TPO computed eligible deduction under Section 10A of Act by holding that numerator and denominator should be of same figure. In other words, export turnover and total turnover shall include same expenditure and receipts. No doubt, expenditure incurred in foreign currency towards internet and foreign travel expenses cannot form part of export turnover of assessee. If that is so, such expenditure in foreign currency towards internet and foreign travel expenses cannot also be part of total turnover. Therefore, Assessing Officer is not justified in excluding such expenditure from export turnover and including same in total turnover. As observed earlier, both denominator and numerator should be of same figure, otherwise computation may not result in correct profit. only objection of Ld. Departmental Representative is that appeal is pending before High Court against order of this Tribunal in Sak Soft Ltd. (supra). This Tribunal is of 4 I.T.A. No.556 & 600/Mds/15 considered opinion that mere pendency of appeal before High Court cannot be reason for not following decision of this Tribunal. It is nobody s case that Madras High Court has stayed operation of order of this Tribunal in SAK Soft Ltd. (supra). Therefore, this Tribunal is of considered opinion that Dispute Resolution Panel has rightly directed Assessing Officer to exclude foreign currency expenses towards internet and foreign travel expenses from both total turnover and export turnover. Therefore, this Tribunal do not find any reason to interfere with order of lower authority and accordingly same is confirmed. 5. Now coming to assessee s appeal in I.T.A. No.600/Mds/2015. first ground is with regard to reference made to Transfer Pricing Officer. 6. Shri G. Seetharaman, Ld. representative for assessee, submitted that turnover of assessee admittedly was `7,78,58,274/-. Central Board of Direct Taxes in its circular F.No.225/93/2009/ITA-II dated 10.09.2011instructed its officers not to refer matter to Transfer Pricing Officer for assessment year 2010-11 in case total turnover was less than `15 Crores. This circular of CBDT was brought to notice of 5 I.T.A. No.556 & 600/Mds/15 Assessing Officer as well as DRP by way of objection. Referring to page 10 of objection said to be filed before Assessing Officer, consequent to draft assessment framed by Assessing Officer, Ld. representative submitted that inspite of circular which was brought to notice of Assessing Officer as well as DRP, no finding was recorded by any of authorities below. According to Ld. representative, when CBDT instructed its officers not to refer matter to TPO wherever turnover was less than `15 Crores, same was binding on Assessing Officer and he cannot make any upward adjustment either by himself or by making reference to Transfer Pricing Officer. Inspite of this specific objection raised by assessee in objection filed before Assessing Officer and DRP, both authorities below have not recorded any finding. Referring to decision of Delhi Bench of this Tribunal in Crystal Phosphates Ltd. v. ACIT in I.T.A. No. 3630/Del/2009, Ld. representative submitted that on identical factual situation, after considering circular issued by CBDT for selection for scrutiny assessment, Delhi Bench found that since return was selected contrary to instruction issued by CBDT, 6 I.T.A. No.556 & 600/Mds/15 Tribunal held that return selected for scrutiny assessment is not valid. 7. On contrary, Shri A.B. Maurya, Ld. Departmental Representative, submitted that reference to Transfer Pricing Officer is discretion of Assessing Officer. When Assessing Officer finds that it is necessary to determine arm's length price in relation to international transaction, he has to necessarily make reference to Transfer Pricing Officer. Without making any reference, Assessing Officer cannot make any upward adjustment and determine arm's length price. Therefore, according to Ld. D.R., it cannot be said that no reference could be made to Transfer Pricing Officer wherever turnover was less than `15 Crores. 8. We have considered rival submissions on either side and perused relevant material available on record. It is not in dispute that there was circular issued by CBDT not to refer matter to Transfer Pricing Officer for determination of arm's length price in relation to international transaction. We have carefully gone through provisions of Section 92CA of Act. If Assessing Officer considers it necessary to determine arm's 7 I.T.A. No.556 & 600/Mds/15 length price in relation to international transaction, with previous approval of Principal Commissioner or Commissioner, as case may be, refer matter to Transfer Pricing Officer. Therefore, reference to be made to Transfer Pricing Officer is after previous approval of Commissioner or Principal Commissioner, as case may be. Now CBDT vide its circular instructed its officers not to refer matter to Transfer Pricing Officer wherever turnover was less than ` 15 Crores. In case before us, it is not in dispute that turnover of assessee is less than ` 15 Crores. When CBDT decided not to refere matter to Transfer Pricing Officer wherever transaction of international transaction was less than ` 15 Crores, this Tribunal is of considered opinion that reference made by Assessing Officer is contrary to instruction given by CBDT. CBDT being administrative body to administer direct tax laws, instruction issued by it is binding on all lower authorities. Therefore, instruction issued by CBDT to all its officers not to refer matter to Transfer Pricing Officer wherever total turnover was less than ` 15 Crores is binding on Assessing Officer. Hence, Assessing Officer should not have referred matter to Transfer Pricing Officer. Since reference itself was 8 I.T.A. No.556 & 600/Mds/15 contrary to instruction issued by CBDT, this Tribunal is of considered opinion that there cannot be any adjustment towards international transaction by determining arm's length price. In view of above, this Tribunal is unable to uphold order of lower authority and accordingly same is set aside. adjustment made by Assessing Officer towards international transaction is deleted. 9. In result, appeal filed by assessee is allowed and appeal of Revenue is dismissed. Order pronounced on 7th October, 2016 at Chennai. sd/- sd/- (A. Mohan Alankamony) (N.R.S. Ganesan) Accountant Member Judicial Member Chennai, th /Dated, 7 October, 2016. Kri. Copy to: 1. Assessee 2. Assessing Officer 3. Secretary, DRP, Chennai 4. CIT, Chennai-VI, Chennai 5. DR 6. GF. Deputy Commissioner of Income Tax, Corporate Circle 6(1), Chennai v. M/s Sensiple Software Solution Pvt. Ltd