M/s. TIBCO Software India Pvt. Ltd., Pune V. Deputy Commissioner of Income-tax,Circle-7, Pune

CO 08/PUN/2018

• Counselvise Citation: [2019] 114 COUNSELVISE.COM (IT) 2239 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 9 month(s) 26 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 20-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 19-11-2019
• Assessment Year: 2011-2012
• Appeal Filed On: 25-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAKESH GUPTA
• Keywords: Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH C, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER . / ITA NO.591/PUN/2016 / ASSESSMENT YEAR : 2011-12 TIBCO SOFTWARE INDIA PRIVATE LIMITED, 3 RD FLOOR, BINARIUS, DEEPAK COMPLEX, NATIONAL GAMES ROAD, SHASTRI NAGAR, YERWADA, PUNE 06 PAN : AACCT6136F VS. DCIT, CIRCLE-7, PUNE APPELLANT RESPONDENT . / ITA NO.627/PUN/2016 / ASSESSMENT YEAR : 2011-12 DCIT, CIRCLE-7, PUNE VS. M/S.TIBCO SOFTWARE INDIA PRIVATE LIMITED, 3 RD FLOOR, BINARIUS, DEEPAK COMPLEX, NATIONAL GAMES ROAD, SHASTRI NAGAR, YERWADA, PUNE 06 PAN : AACCT6136F APPELLANT RESPONDENT C.O.NO.08/PUN/2018 (ARISING OUT OF ITA NO.627/PUN/2016) / ASSESSMENT YEAR : 2011-12 TIBCO SOFTWARE INDIA PRIVATE LIMITED, 3 RD FLOOR, BINARIUS, DEEPAK COMPLEX, NATIONAL GAMES ROAD, SHASTRI NAGAR, YERWADA, PUNE 06 PAN : AACCT6136F VS. DCIT, CIRCLE-7, PUNE CROSS OBJECTOR RESPONDENT APPELLANT BY SHRI RAKESH GUPTA RESPONDENT BY SHRI T. VIJAYA BHASKAR REDDY TIBCO SOFTWARE INDIA PRIVATE LIMITED A.Y. 2011-12 2 / ORDER PER R.S.SYAL, VP : THESE TWO CROSS APPEALS ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE ALONG WITH ONE CROSS OBJECTION BY THE ASSES SEE ARISE OUT OF THE FINAL ASSESSMENT ORDER DATED 29-01-2016 PASSE D BY THE ASSESSING OFFICER U/S.143(3) R.W.S.144C(13) OF THE INCO ME-TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) IN RELATION TO THE ASSESSME NT YEAR 2011-12. 2. THE REVENUES APPEAL IS TIME-BARRED BY 09 DAYS. TH E REVENUE HAS FILED AN AFFIDAVIT EXPLAINING THE REASONS WHICH LE D TO THE LATE FILING OF THE APPEAL. WE ARE SATISFIED WITH SUCH REAS ONS. THE DELAY IS CONDONED AND THE APPEAL IS ADMITTED FOR HEARING ON MERITS. 3. THE APPEAL BY THE REVENUE AND CROSS OBJECTION BY THE A SSESSEE ROTATE AROUND THE TRANSFER PRICING ADJUSTMENT IN RESPECT OF THREE SETS OF INTERNATIONAL TRANSACTIONS, NAMELY, SOFTWARE RESEARCH AND DEVELOPMENT SEGMENT, SUPPORT SERVICES SEGMENT AND MARKING SERVICES SEGMENT. DATE OF HEARING 19-11-2019 DATE OF PRONOUNCEMENT 20-11-2019 TIBCO SOFTWARE INDIA PRIVATE LIMITED A.Y. 2011-12 3 4. SUCCINCTLY, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIAN SUBSIDIARY OF TIBCO, US. THE ASSESSEE ENTERED IN TO SOFTWARE RESEARCH AND DEVELOPMENT SERVICES AGREEMENT WITH TIBCO, US, FOR PROVIDING SOFTWARE RESEARCH AND DEVELOPM ENT SERVICES IN ACCORDANCE WITH THE DESIGN, PRODUCTION ORDERS, P LANS, PROCESS AND SPECIFICATIONS AND PRODUCTION SCHEDULES. THE ASS ESSEE FILED ITS RETURN DECLARING CERTAIN INTERNATIONAL TRANSACTIONS. THE ASSESSING OFFICER (AO) MADE REFERENCE TO THE TRANSFER P RICING OFFICER (TPO) FOR DETERMINING THE ARMS LENGTH PRICE (ALP) O F THE INTERNATIONAL TRANSACTIONS. THE TPO TINKERED WITH CERTAIN COMPARABLES SELECTED BY THE ASSESSEE IN ALL THE THREE SEGMEN TS AND EVENTUALLY PROPOSED A TOTAL TRANSFER PRICING ADJUSTMENT OF RS.6,70,03,680/- COVERING SOFTWARE DEVELOPMENT SERVICES SEGMENT, ITES SEGMENT AND MARKETING SEGMENT. THE ASSESSEE APPROACHED THE DISPUTE RESOLUTION PANEL (DRP), WHICH GAVE C ERTAIN DIRECTIONS ON THE INCLUSION/EXCLUSION OF CERTAIN COMPARABLES IN ALL THE THREE SEGMENTS. AS A RESULT OF SUCH DIRECTIONS, TOTAL TRA NSFER PRICING ADJUSTMENT CAME TO BE DELETED. THAT IS HOW, THE REV ENUE IS MAINLY AGGRIEVED BY THE DIRECTIONS GIVEN BY THE DRP ON INCLUSION/EXCLUSION ON CERTAIN COMPANIES IN THE LIST OF COMPARAB LES IN ALL THE THREE SEGMENTS. THE ASSESSEE IN ITS CROSS OBJECTION IS ALSO TIBCO SOFTWARE INDIA PRIVATE LIMITED A.Y. 2011-12 4 AGGRIEVED BY CERTAIN ISSUES CONCERNING THE TRANSFER PRICING ADJUSTMENT. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH TH E RELEVANT MATERIAL ON RECORD. AT THE OUTSET, THE LD. COUNSEL F OR THE ASSESSEE SUBMITTED THAT EVEN IF ALL THE GROUNDS TAKEN BY THE DEPARTMENT ARE ACCEPTED STILL THERE WILL NOT ARISE ANY TRANSFER PRICING ADJUSTMENT BECAUSE OF THE ASSESSEES MARGIN FALLING WITHIN THE PERMISSIBLE RANGE OF THE AVERAGE MARGIN OF THE COMPAR ABLE COMPANIES. THE LD. AR FILED A SEGMENT-WISE COMPUTATION ON THE BASIS OF WHICH IT HAS BEEN CLAIMED THAT NO TRANSFER PRICING ADDITION IS SUSTAINABLE EVEN IF THE REVENUES GROUNDS ARE ACCEPTED . SUCH A SUBMISSION MADE BY THE ASSESSEE IN RESPECT OF ALL THE THRE E SEGMENTS IS REPRODUCED AS UNDER: SOFTWARE DEVELOPMENT SERVICES SEGMENT SR.NO. NAME OF COMPANY WORKING CAPITAL ADJUSTED OP/TC AS PER TPO REPORT DATED 22 JAN 16 IF DEPT. APPEAL ALLOWED 1 THINKSOFT GLOBAL SERVICES LTD. -3.24% -- 2 PERSISTENT SYSTEMS & SOLUTIONS LTD. 20.52% -- 3 THIRDWARE SOLUTIONS LTD. -29.20% -29.20% 4 ACROPETAL TECHNOLOGIES LTD. (IT SEGMENT) 22.06% 22.06% 5 E-INFOCHIPS LTD. 54.90% 54.90% 6 AKSHAY SOFTWARE TECHNOLOGIES LTD. 1.24% 1.24% 7 GOLDSTONE TECHNOLOGIES LTD. -.0.28% -0.28% 8 L.G. S. GLOBAL LTD. 10.76% 10.76% 9 L&T INFOTECH LTD. 17.95% 17.95% 10 PERSISTENT SYSTEMS LTD. 20.83% 20.83% TIBCO SOFTWARE INDIA PRIVATE LIMITED A.Y. 2011-12 5 11 SASKEN COMMUNICATION TECHNOLOGIES LTD. (TELECOM SERVICES SEGMENT) 24.03% 24.03% 12 MINDTREE LTD. (IT SERVICES) 10.40 10.40% AVERAGE 12.50% 13.27% TIBCO INDIA PLI 12.87% 12.87% CONCLUSION AT ALP AT ALP +/-5% +/-5% RANGE COMPUTATION TC(A) 266,572,957 ALP(B) 13.27% AL REVENUE 301,944,523 [C=A+(A*B)] REVENUE (D) 300,870,267 5% HIGHER (D*1.05) 315,913,780 5% HIGHER (D*0.95) 285,826,754 SUPPORT SERVICES SEGMENT SR.NO. NAME OF COMPANY WORKING CAPITAL ADJUSTED OP/TC AS PER TPO REPORT DATED 22 JAN 16 IF DEPT. APPEAL ALLOWED 1 CALIBER POINT 9.12% 9.12% 2 MICROLAND LTD. (ITES SEGMENT) 8.50% -- 3 ACCENTIA TECHNOLOGIES LTD. 25.86% 25.86% 4 INFORMED TECHNOLOGIES INDIA LTD. 11.60% 11.60% 5 JINDAL INTELLICOM PVT. LTD. 13.79% 13.79% 6 MICROGENETICS SYSTEMS LTD. 0.97% 0.97% 1 ECLERX SERVICES LTD. NA 56.34% 2 COSMIC GLOBAL LTD. NA 10.82% AVERAGE 11.64% 18.36% TIBCO INDIA PLI 16.18% 16.18% CONCLUSION AT ALP AT ALP +/-5% +/-5% RANGE COMPUTATION TC(A) 466,037,961 ALP(B) 18.36% AL REVENUE 551,589,215 [C=A(A*B)] REVENUE (D) 541,426,337 5% HIGHER (D*1.05) 568,497,654 5% HIGHER (D*0.95) 514,355,020 TIBCO SOFTWARE INDIA PRIVATE LIMITED A.Y. 2011-12 6 MARKETING SUPPORT SERVICES SEGMENT SR.NO. NAME OF COMPANY WORKING CAPITAL ADJUSTED OP/TC AS PER TPO REPORT DATED 22 JAN 16 IF DEPT. APPEAL ALLOWED 1 IDC (INDIA) LTD. (MSS SEGMENT) 9.88% -- 2 QUADRANT COMMUNICATIONS LTD. 18.49% 18.49% 3 EMPIRE INDUSTRIES LTD. (TRADING & INDENTING SEGMENT) 22.63% 22.63% 4 ENTERTAINMENT NETWORKS (INDIA) LTD. (EVENT SEGMENT) 1.35% 1.35% 5 PRIYA INTERNATIONAL LTD. (INDENTING SEGMENT) 4.20% 4.20% 6 ASIAN BUSINESS EXHIBITION & CONFERENCES LTD. 20.29% 20.29% 7 ICC INTERNATIONAL AGENCIES LTD. (COMMISSION & SERVICE ACTIVITY SEGMENT) 36.76% 36.76% AVERAGE 16.23% 17.29% TIBCO INDIA PLI 12.84% 12.84% CONCLUSION AT ALP+/-5% AT ALP +/-5% TC(A) 44,731,847 44,731,847 ALP(B) 16.23% 17.29% AL REVENUE [C=A+(A*B)] 51,991,187 52,464,492 REVENUE (D) 50,475,698 50,475,698 5% HIGHER (D*1.05) 52,999,483 52,999,483 5% HIGHER (D*0.95) 47,951,913 47,951,913 6. PER CONTRA, THE LD. DR SUBMITTED THAT THE ABOVE CALCULATION HAS BEEN PLACED ON RECORD FOR THE FIRST TIME AND HENCE THE BEN CH SHOULD NOT RELY ON THE SAME UNLESS THE SAME IS CONFIRMED BY THE AO /TPO. WE AGREE WITH SUCH A JUSTIFIABLE SUBMISSION MADE ON BEHALF O F THE REVENUE. AS SUCH, THE IMPUGNED ORDER IS SET-ASIDE AND THE MATTER IS RESTORED TO THE FILE OF THE AO/TPO FOR VERIFYING THE CALCULATIONS AS TIBCO SOFTWARE INDIA PRIVATE LIMITED A.Y. 2011-12 7 REPRODUCED ABOVE FOR ASCERTAINING IF THE SUBMISSION MADE O N BEHALF OF THE ASSESSEE IS CORRECT. NEEDLESS TO SAY, THE ASSESS EE WILL BE ALLOWED A REASONABLE OPPORTUNITY OF HEARING. IN THE OTHERWISE SCENARIO, THE CONCERNED AUTHORITY WILL PROCEED AS PER LAW. 7. THE ONLY ISSUE WHICH IS RAISED IN THE ASSESSEES APPEAL IS AGAINST DENIAL OF DEDUCTION ON INTEREST INCOME OF RS.29,23,65 2/- U/S.10A OF THE ACT. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. THE AO DID NOT ALLOW DEDUCTION U/S.10A IN RESPECT OF THE INTEREST INCOME. THE LD. AR SUBM ITTED THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNA L FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. A COPY OF THE OR DER DATED 31-01-2017 PASSED BY THE TRIBUNAL IN ITA NO.276/PUN/2015 HAS BEEN PLACED ON RECORD, AS PER WHICH THIS ISSUE HAS BEEN RESTORED WITH CERTAIN DIRECTIONS. THE RELEVANT DISCUSSION HAS BEEN MA DE ON PAGE 22 PARA 34 OF THE ORDER. THE LD. DR COULD NOT PO INT OUT ANY DISTINGUISHING FEATURE IN THE FACTS AND RELEVANT LAW IN SOFARAS THE PRECEDING YEAR VIS--VIS THE INSTANT YEAR IS CONCERNED. RE SPECTFULLY FOLLOWING THE PRECEDENT, WE SET-ASIDE THE IMPUGNED ORDER O N THIS ISSUE AS WELL AND REMIT THE MATTER TO THE FILE OF THE AO FOR D ECIDING TIBCO SOFTWARE INDIA PRIVATE LIMITED A.Y. 2011-12 8 IT AFRESH IN ACCORDANCE WITH THE DIRECTIONS GIVEN BY THE TRIBU NAL IN ITS ORDER FOR THE PRECEDING YEAR. 9. IN THE RESULT, THE CROSS APPEALS AS WELL AS THE CROSS OB JECTION ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH NOVEMBER, 2019. SD/- SD/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VIC E PRESIDENT PUNE; DATED : 20 TH NOVEMBER, 2019 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-13, PUNE 4. 5. 6. THE PR.CIT-V, PUNE , , / DR C, ITAT, PUNE; / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR P RIVATE SECRETARY , / ITAT, PUNE TIBCO SOFTWARE INDIA PRIVATE LIMITED A.Y. 2011-12 9 DATE 1. DRAFT DICTATED ON 19-11-2019 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 19-11-2019 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *