M/s. Ocwen Financial Solutions Private Limited, Pune V. Deputy Commissioner of Income-tax, Circle-11, Pune

CO 14/PUN/2018

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3817 (ITAT-PUNE)
• Duration Of Justice: 1 month(s) 17 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 14-05-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 27-03-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NIRUPAMA KOTRU
• Keywords: Transfer pricing; International transaction; Tax effect
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKARA RAO , AM . / ITA NO. 511 /P U N/20 1 6 / ASSESSMENT YEAR : 20 11 - 12 THE DY. COMMISSIONER OF INCOME TAX CIRCLE 11, PUNE . / APPELLANT VS. M/S. OCWEN FINANCIAL SOLUTIONS PVT. LTD. (LEGAL SUCCESSOR OF M/S. HOMEWARD RESIDENTIAL CORP ORATION INDIA PVT. LTD., (FORMERLY KNOWN AS AMERICAN HOME MORTGAGE SERVICING INDIA PVT. LTD.) LEVEL 4, TOWER - VI, CYBERCITY, MAGARPATTA CITY, HADAPSAR, PUNE - 411013 . / RESPONDENT PAN: AA ACO7914J . /CO NO. 01 /PUN/201 8 / ASSESSMENT YEAR : 20 11 - 12 (OUT OF ITA NO. 511 /PUN/201 6 ) M/S. OCWEN FINANCIAL SOLUTIONS PVT. LTD. (LEGAL SUCCESSOR OF M/S. HOMEWARD RESIDENTIAL CORPORATION INDIA PVT. LTD., (FORMERLY KNOWN AS AMERICAN HOME MORTGAGE SERVICING INDIA PVT. LTD.) LEVEL 4, TOWER - VI, CYBERCITY, MAGARPATTA CITY, HADAPSAR, PUNE - 411013 / CROSS OBJECT OR PAN: AAACO7914J VS. THE DY. COMMISSIONER OF INCOME TAX CIRCLE 11, PUNE . / RESPONDENT 2 ITA NO. 511 /P U N/201 6 CO NOS. 01 & 14 /PUN/201 8 . /CO NO. 14 /PUN/20 1 8 / ASSESSMENT YEAR : 2011 - 12 (OUT OF ITA NO.511/PUN/2016 ) M/S. OCWEN FINANCIAL SOLUTIONS PVT. LTD. (LEGAL SUCCESSOR OF M/S. HOMEWARD RESIDENTIAL CORPORATION INDIA PVT. LTD., (FORMERLY KNOWN AS AMERICAN HOME MORTGAGE SERVICING INDIA PVT. LTD.) LEVEL 4, TOWER - VI, CYBERCITY, MAGARPATTA CITY, HADAPSAR, PUNE - 411013 / CROSS OBJECT OR PAN: AAACO7914J VS. THE DY. COMMISSIONER OF INCOME TAX CIRCLE 11, PUNE . / RESPONDENT ASSESSEE BY : SHRI RAJENDRA AGIWAL REVENUE BY : MS. NIRUPAMA KOTRU, CIT / DATE OF HEARING : 09 . 0 5 . 201 8 / DATE OF PRONOUNCEMENT: 14 . 05 . 201 8 / ORDER PER SUSHMA CHOWLA, JM: THE APPEAL FILED BY THE REVENUE IS AGAINST ORDER OF D C IT , CIRCLE 11 , PUNE, DATED 2 7 .0 1 .201 6 RELATING TO ASSESSMENT YEAR 20 11 - 12 PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . THE ASSESSEE FILED CAPTIONED TWO CROSS OBJECTIONS AGAINST THE APPEAL OF REVENUE. 2 . THE APPEAL O F REVENUE ALONG WITH TWO CROSS OBJECTIONS FILED BY THE ASSESSEE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3 ITA NO. 511 /P U N/201 6 CO NOS. 01 & 14 /PUN/201 8 3. FIRST, WE SHALL TAKE UP THE APPEAL OF REVENUE, WHEREIN THE FOLLOWING GROUNDS OF APPEAL HAVE BEEN RAISED: - 1. THE DRP ERRED BY DIRECTING TO INCLUDE R SYSTEM INTERNATIONAL LIMITED AS A COMPARABLE COMPANY WITHOUT APPRECIATING THE FACT THAT THE COMPANY MAINTAINED ITS DATA FOR THE PERIOD OF 01/01/2010 TO 31/12/2011, THEREBY COMPANY FAIL TO PASS THE FILTER OF ONLY CURRENT YEAR DATA (F.Y. 2010 - 11) HAS BEEN USED ADOPTED BY TPO. 2. THE DRP ERRED BY DIRECTING TO INCLUDE CORAL HUB LTD. AS A COMPARABLE COMPANY WITHOUT APPRECIATING THE FACT THAT THE COMPANY MAINTAINED ITS DATA FOR THE PERIOD OF 01/07/ 2010 TO 30/06/2011, THEREBY COMPANY FAILS TO PASS THE FILTER OF ONLY CURRENT YEAR DATA (F.Y. 2010 - 11) HAS BEEN USED ADOPTED BY TPO. 4. THE ONLY ISSUED RAISED BY THE REVENUE IS AGAINST THE ORDER OF DISPUTE RESOLUTION PANEL (DRP) IN INCLUDING R SYSTEM INT ERNATIONAL LTD. AND CORAL HUB LTD. IN THE FINAL LIST OF COMPARABLES THOUGH THE SAID CONCERNS HAD DIFFERENT ACCOUNTING PERIODS. 5. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT EVEN IF THE SAID TWO CONCERNS ARE EXCLUDED THE MEAN M ARGINS OF BALANCE CONCERNS PICKED UP FOR COMPARISON WOULD BE WITHIN +/ - 5% RANGE OF MARGINS SHOWN BY THE ASSESSEE AND NO ADJUSTMENT HAS TO BE MADE IN THE HANDS OF ASSESSEE. IN THIS REGARD, HE FILED THE DETAILS OF MARGINS OF CONCERNS FINALLY SELECTED BY TH E DRP AND ALSO IF R SYSTEM INTERNATIONAL LTD. AND CORAL HUB LTD. ARE EXCLUDED FROM THE FINAL SET OF COMPARABLES. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT THE ASSESSEE HAD INITIALLY FILED CO NO.01/PUN/2018 IN THE NAME OF M/S. HOMEWARD RESIDENTIAL CORPORATION INDIA PVT. LTD. HOWEVER, SINCE THERE WAS MERGER, THEN ASSESSEE FILED REVISED CROSS OBJECTIONS I.E. BY CHANGING NAME TO M/S. OCWEN FINANCIAL SOLUTIONS PVT. LTD., WHICH IS CO NO.14/PUN/2018. HE FURTHER EXPLAINED TH AT SECOND CO FILED BY THE ASSESSEE WAS IN SUBSTITUTION OF EARLIER CO FILED AND IT IS NOT TIME BARRED. HOWEVER, HE POINTED OUT THAT IN VIEW OF THE ORDER OF DRP AND EVEN IF THE TWO CONCERNS I.E. R SYSTEM INTERNATIONAL LTD. AND 4 ITA NO. 511 /P U N/201 6 CO NOS. 01 & 14 /PUN/201 8 CORAL HUB LTD. ARE EXCLUDED, T HE MARGINS SHOWN BY ASSESSEE ARE WITHIN +/ - 5% RANGE OF MEAN MARGINS OF COMPARABLES FINALLY SELECTED, THEN THE ISSUES RAISED IN THE CROSS OBJECTIONS BECOME ACADEMIC IN NATURE. IN RESPECT OF CO NO.01/PUN/2018, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WITHDREW THE SAME. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT THE ISSUE IS DECIDED AGAINST THE ASSESSEE BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. PTC SOFTWARE (I) PVT. LTD. IN INCOME TAX APPEAL NO.732 OF 2014, J UDGMENT DATED 26.09.2016 . 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE WAS CAPTIVE ENTITY MAINLY ENGAGED IN PROVIDING INFORMATION TECHNOLOGY I.E. IT ENABLED SERVICES IN THE NATURE OF CALL CENTRE AND LOW END BACK OFFICE SUPP ORT SERVICES TO ITS ENTERPRISES. THE ASSESSEE WAS BEING REMUNERATED AT COST PLUS 15%. THE ASSESSEE HAD USED TNMM METHOD TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS WITH PROFIT LEVEL INDICATOR (PLI) OF OPERATING PROFIT / OPERATING COST (OP/OC). THE ASSES SEE IN ITS TRANSFER PRICING STUDY REPORT HAD PICKED UP CERTAIN CONCERNS AS COMPARABLES AND HAD HELD ITS INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES AT ARM'S LENGTH PRICE. THE TPO HOWEVER, PROPOSED AN UPWARD ADJUSTMENT OF 5,62,67,450/ - TO BE MADE TO ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS OF THE ASSESSEE. THE ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDER ISSUED DIRECTIONS TO THE ASSESSEE IN THIS REGARD. THE DRP VIDE ORDER DATED 14.12.2015 ISSUED DIRECTIONS UNDER SECTION 144C(5) OF THE ACT. THE ASSESSING OFFICER/TPO CONSEQUENT TO THE DIRECTIONS OF DRP, CORRECTED PLI OF FINAL SET OF COMPARABLE COMPANIES WHICH ARE TABULATED AT PAGE 7 OF THE ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE ACT. THE INTERNATIONAL TRANSACTIO N OF ASSESSEE 5 ITA NO. 511 /P U N/201 6 CO NOS. 01 & 14 /PUN/201 8 WITH ITS ASSOCIATED ENTERPRISES WAS FOUND TO BE AT ARM'S LENGTH PRICE AFTER THE DIRECTIONS OF DRP AND HENCE, NO ADDITION WAS MADE IN THE HANDS OF ASSESSEE. 8. THE REVENUE HOWEVER, IS AGGRIEVED BY THE DIRECTIONS OF DRP, WHEREIN IT HAD DIRECTE D INCLUSION OF TWO CONCERNS I.E. R SYSTEM INTERNATIONAL LTD. AND CORAL HUB LTD. THE REVENUE HAS POINTED OUT R SYSTEM INTERNATIONAL LTD. THOUGH FUNCTIONALLY COMPARABLE, FAIL THE FILTER ADOPTED BY THE TPO I.E. CURRENT YEAR DATA I.E. FINANCIAL YEAR 2010 - 11, WHEREIN THE DATA OF SAID CONCERN WAS MAINTAINED FROM 01.01.2010 TO 31.12.2010. SIMILARLY, IN RESPECT OF CONCERN CORAL HUB LTD., IT WAS POINTED OUT THAT EVEN IF THE SAID CONCERN WAS CONSIDERED AS FUNCTIONALLY COMPARABLE, THE DATA WHICH WAS AVAILABLE WAS FO R THE PERIOD 01.07.2010 TO 30.06.2011. AS PER THE REVENUE, BOTH THE CONCERNS FAIL THE FILTER APPLIED BY THE TPO AND COMPARED THE RESULTS OF THE SAID CONCERN WITH THE RESULTS OF ASSESSEE WHICH ARE SHOWN FOR FINANCIAL YEAR STARTING FROM 01.04.2010 TO 31.03. 2011. WE FIND MERIT IN THE PLEA OF REVENUE IN THIS REGARD. THE HONBLE BOMBAY HIGH COURT IN CIT VS. PTC SOFTWARE (I) PVT. LTD. (SUPRA) HAS HELD THAT THE DATA FOR THE SAME PERIOD IS TO BE APPLIED IN ORDER TO HOLD THE CONCERNS SELECTED, AS COMPARABLE. W E FIND THAT WHERE THE ASSESSEE IS FOLLOWING FINANCIAL YEARS FOR COMPILING ITS DATA I.E. 01.04.2010 TO 31.03.2011, THE TWO CONCERNS SELECTED I.E. R SYSTEM INTERNATIONAL LTD. AND CORAL HUB LTD. DO NOT FULFILL THE SAID FILTER. THE ACCOUNTING PERIODS OF SAID TW O CONCERNS ARE AT VARIANCE TO THE ACCOUNTING PERIOD FOLLOWED BY THE ASSESSEE AND CONSEQUENTLY, THE MARGINS OF SAID CONCERNS COULD NOT BE APPLIED TO BENCHMARK THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. ACCORDINGLY, WE HOLD SO. THUS, WE DIRECT THE ASSESSING OFFICER / TPO TO EXCLUDE THE MARGINS OF SAID TWO CONCERNS I.E. R SYSTEM INTERNATIONAL LTD. AND CORAL HUB LTD. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS FILED THE DETAILS OF MARGINS OF THE CONCERNS SELECTED AS COMPARABLES AFTER WORKING CAPITAL ADJUSTMENT AND THE MEAN 6 ITA NO. 511 /P U N/201 6 CO NOS. 01 & 14 /PUN/201 8 MARGINS OF THE CONCERNS FINALLY SELECTED WORKED OUT TO 15.82%. THE ASSESSEES PLI WORKED OUT TO 14.46%. IN VIEW THEREOF, WHERE THE MARGINS SHOWN BY THE ASSESSEE AND THE MEAN M ARGINS OF COMPARABLES ARE WITHIN +/ - 5%, THEN NO TRANSFER PRICING ADJUSTMENT I S TO BE MADE IN THE HANDS OF ASSESSEE. IT MAY BE POINTED OUT HEREIN ITSELF THAT THE ASSESSING OFFICER HAD ALSO DELETED PROPOSED ADDITION MADE BY THE TPO AFTER GIVING EFFECT TO TH E DIRECTIONS OF THE DRP. CONSEQUENTLY, WE ALLOW THE GROUNDS OF APPEAL RAISED BY THE REVENUE, THOUGH TAX EFFECT IN THE SAID APPEAL WOULD BE NIL. 9. THE CROSS OBJECTION NO.01/PUN/2018 IS WITHDRAWN BY THE ASSESSEE AND HENCE, THE SAME IS DISMISSED AS WITHDRA WN. 10. THE CROSS OBJECTION NO.14/PUN/2018 WAS FILED BY THE ASSESSEE IN ORDER TO SUBSTITUTE THE NAME OF THE CONCERN WHICH IT GOT MERGED WITH M/S. OCWEN FINANCIAL SOLUTIONS PVT. LTD. THE SAID CO FILED BY THE ASSESSEE IS NOT TIME BARRED. HOWEVER, THE ISSU ES RAISED IN THE CO BECOME ACADEMIC IN NATURE AS FINALLY NO TRANSFER PRICING ADJUSTMENT HAS BEEN MADE IN THE HANDS OF THE ASSESSEE. ACCORDINGLY, THE SAME IS DISMISSED. 11 . IN THE RESULT, APPEAL OF REVENUE IS ALLOWED AND CROSS OBJECTIONS OF ASSESSEE ARE D ISMISSED AS INDICATED ABOVE. ORDER PRONOUNCED ON THIS 14 TH DAY OF MAY , 201 8 . SD/ - SD/ - ( D.KARUNAKARA RAO ) (SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 14 TH MAY , 201 8 . GCVSR 7 ITA NO. 511 /P U N/201 6 CO NOS. 01 & 14 /PUN/201 8 / COPY OF THE O RDER IS FORWARDED TO : 1. THE APPELLANT ; 2. THE RESPONDENT; 3. THE DRP, PUNE ; 4. THE DIT (TP/IT), PUNE ; 5. THE DR B , ITAT, PUNE; 6. GUARD FILE . / BY ORDER , //TRUE COPY// / SR. PRIVATE SECRETARY , / ITAT, PUNE