ALTIMETRIX INDIA PVT. LTD, Bangalore V. Asst.C.I.T., Bangalore

CO 219/BANG/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7212 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 1 month(s) 4 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 11-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2004-2005
• Appeal Filed On: 07-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Principle of natural justice; International transaction; Retrospective amendment; Question of law; Condonation of delay

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH C BEFORE SHRI JASON P BOAZ, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER CO NO.219/BANG/2015 (IN IT(TP)A NO.36/BANG/2011) ASSESSMENT YEAR : 2004-05 SYNOVA INNOVATIVE TECHNOLOGIES PVT. LTD., (NOW MERGED WITH ALTIMETRIK INDIA PVT. LTD.,) SY. NO.7P AND 93P, ELECTRONIC CITY PHASE II, BEGUR HOBLI TALUK, BANGALORE. PAN AABCE 2733L VS. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE 12(3), BANGALORE. . APPELLANT RESPONDENT APPELLANT BY : SHRI SHARATH RAO, C.A RESPONDENT BY : SHRI PRADEEP KUMAR, CIT DATE OF HEARING : 17.12.2018 DATE OF PRONOUNCEMENT : 11.01.2019 O R D E R PER SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER THE CROSS-OBJECTION IS FILED BY THE ASSESSEE IN REV ENUES APPEAL IN ITA NO.36/BANG/2015 FOR THE ASST. YEAR 20 04-05. THE SAID CO NO.219/B/15 2 CROSS-OBJECTION WAS DISMISSED BY THE ITAT BY ORDER DATED 23/12/2016 DUE TO DELAY IN FILING THE CROSS-OBJECTI ON BY 951 DAYS. 2. THE ASSESSEE APPROACHED THE HONBLE HIGH COURT O F KARNATAKA, BENGALURU AND AFTER HEARING THE SUBMISSIONS, THE HO NBLE COURT HAS CONDONED THE DELAY AND PASSED THE ORDER ON 12 AUG, 2018 AND OBSERVED AT PARA 5 & 6 OF PAGE 9, 10WHICH READS AS UNDER:- 5. HAVING HEARD THE LEARNED COUNSELS FOR THE PARTIES, WE ARE OF THE OPINION THAT THOUGH THE CONDONATION OF DELAY IS A DISCRETIONARY MATTER AND NORMALLY IT WOULD NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW REQUIRING CONSIDERATION U/S.260A OF THE ACT, BUT IN THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, THE CROSS OBJECTIONS CAME TO BE FILED LATER ON, IN VIEW OF THE RETROSPECTIVE AMENDMENT OF THE LAW AND ON THE ANVIL OF WHICH THE ASSESSEE HAD CONCEDED VIDE PARA10 OF THE TRIBUNALS' ORDER THAT IT COULD NOT GE T THE BENEFIT OF 5% STANDARD DEDUCTION, BUT IN THE ALTERNATIVE, THE ONLY COURSE UPON THE ASSESSEC WAS TO URGE BEFORE THE LEARNED TRIBUNAL, THE FINAL FACT FINDING BODY TO CONSIDER ITS CLAIM ON MERITS ABOUT THE DETERMINATION OF ALP, IGNORING THE SAID 5% STANDARD DEDUCTION AND THEREFORE, EVEN IF THE CROSS OBJECTIONS FOR A.Y.2004-05 WERE BELATEDLY FILED WITH A DELAY OF 1760 DAYS, AS NOTED IN PARA- 14 OF THE TRIBUNAL'S ORDER, THE PART OF WHICH THE DELAY WAS FOUND TO BE DULY EXPLAINED BY THE LEARNED TRIBUNAL THAT ON THAT ACCOUNT BUT THE LATER PART OF 951 DAYS HAVING OCCURRED AFTER THE SPECIAL BENCH DECISION OF THE TRIBUNAL RENDERED ON 30.04.2013, WHEREAS THE CROSS OBJECTIONS FILED BY THE ASSESSEE ON 07.12.2015, THE SAID LATER PART OF CO NO.219/B/15 3 951 DAYS FOUND BY THE LEARNED TRIBUNAL WAS NOT SUFFICIENTLY EXPLAINED AND THEREFORE, THE LEARNED TRIBUNAL CHOSE TO NOT TO CONDONE THE SAID DELAY AND REJECT THE CROSS OBJECTIONS OF THE ASSESSEE. 5. WE ARE OF THE OPINION THAT THE ASSESSEE COULD NOT BE DEPRIVED OF ITS OPPORTUNITY TO CONTEND IN TH E ALTERNATIVE ON THE MERITS OF ITS CLAIM, IF THE ASPE CT RELATING TO 5% STANDARD DEDUCTION WAS NEGATIVED BY A RETROSPECTIVE STATUTORY AMENDMENT BY FINANCE ACT, 2012 AND THEREFORE, IN THE PECULIAR FACTS AND POSITION OF LAW AS AMENDED, THE LEARNED TRIBUNAL OUGHT TO HAVE ALLOWED THE ASSESSEE TO RAISE THE CROSS OBJECTIONS IN THE MATTER AND CONSIDER THE CLAIM OF THE ASSESSEE ON MERITS. THEREFORE, WE ARE INCLINED TO REMAND THE CASE BACK TO THE LEARNED TRIBUNAL FOR CONSIDERING THE CROSS OBJECTIONS RAISED BY THE ASSESSEE ON MERITS. THE SAID IMPUGNED PART OF THE LEARNED TRIBUNAL IN PARA-16 IS THEREFORE SET ASIDE AND THE MATTER IS REMANDED BACK TO THE LEARNED TRIBUNAL FOR CONSIDERING THE MATTER AFRESH IN ACCORDANCE WITH LAW. 3. AS PER THE DIRECTIONS OF THE HONBLE HIGH COURT THE MATTER IS POSTED FOR HEARING TODAY AND THE ASSESSEE HAS RAISE D THE FOLLOWING GROUNDS IN THE CROSS-OBJECTION:- 1. THE ORDER OF THE COMMISSIONER OF INCOME- TAX (APPEALS) ['CIT(A)'] IN SO FAR AS IT RELATES TO THE FOLLOWING GROUND IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. THE LEARNED CIT(A) AND THE LEARNED AO HAS ERRED IN LAW IN RELYING ON THE ORDER UNDER SECT ION 92CA OF THE ACT PASSED BY THE LEARNED TPO, WHICH IN ITSELF IS BAD IN LAW AND ON FACTS AS THE SAME WAS PASSED ON INCORRECT UNDERSTANDING OF THE BUSINESS CO NO.219/B/15 4 MODEL OF THE CROSS-OBJECTOR AND IS THEREFORE LIABLE TO BE QUASHED. 3. THE LEARNED CIT(A) AND THE LEARNED TPO HAVE ERRED IN LAW AND FACTS IN NOT CONSIDERING THE SUBMISSIONS MADE BY THE APPELLANT ON THE DESCRIPTIO N OF THE FUNCTIONS PERFORMED, THE RISKS ASSUMED AND ASSETS EMPLOYED BY THE CROSS-OBJECTOR AND ITS AE. 4. THE LEARNED CIT(A), HAVING CONSIDERED THE DETAILED SUBMISSION FILED BY THE CROSS-OBJECTOR, HA S ERRED IN LAW IN NOT ADJUDICATING ON THE FOLLOWING GROUNDS RAISED BY THE CROSS-OBJECTOR: * THAT THE LEARNED TPO HAS ERRED IN BENCHMARKING THE 'INTERNATIONAL TRANSACTIONS' OF TH E CROSS-OBJECTOR WITH COMPANIES PROVIDING SOFTWARE SERVICES ON THE BASIS THAT THE CROSS- OBJECTOR WAS ENGAGED IN PROVIDING SOFTWARE SERVICES TO THE ASSOCIATED ENTERPRISE (AE') WHEREAS MAJORITY OF THE INTERNATIONAL TRANSACTIONS OF THE CROSS-OBJECTOR PERTAIN TO SERVICES RECEIVED BY THE APPELLANT FROM THE AE. * THAT THE LEARNED TPO AND THE LEARNED AO HAS ERRED IN LAW AND ON FACTS BY PASSING THE ASSESSMENT ORDER CONTRARY TO THE FACTS ON A MISTAKE N BELIEF THAT THE APPELLANT IS ENGAGED IN PROVIDING SOFTWARE SERVICES TO THE AE. 5. HAVING ACCEPTED THE ALTERNATE CONTENTION OF THE CROSS-OBJECTOR THAT THE EXERCISE OF SELECTIN G COMPARABLES DONE BY TPO IN THE TP PROCEEDINGS FOR AY 2005-06 WAS A MORE SCIENTIFIC EXERCISE AS COMPARED TO AY 2004-05, MERELY ON THE BASIS THAT THE SAME WOULD REQUIRE A MASSIVE EXERCISE, W IC IS AGAINST THE PRINCIPLE OF EQUITY AND NATURAL JUSTICE , THE LEARNED CIT(A) ERRED IN LAW IN NOT DIRECTING THAT T HE CO NO.219/B/15 5 SAME METHODOLOGY BE FOLLOWED FOR THE TRANSFER PRICING ANALYSIS OF AY 2004-05 AS WELL 6. THE LEARNED CIT(A) HAS ERRED IN LAW AND FACTS IN DETERMINING THE ARMS LENGTH MARGIN AT 13.96%. 7. THE LEARNED CIT(A) HAS ERRED IN FACTS AND IN LAW IN RE COMPUTING AND DIRECTING THE TPO TO CONSIDER THE MARGIN OF THE CROSS-OBJECTOR OF 3.05% AS AGAINST THE MARGIN OF 4.65% COMPUTED BY THE CROSS-OBJECTOR. THE RESPONDENT/CROSS-OBJECTOR CRAVES TO ADD, ALTER, VARY, OMIT, SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL, AT ANY TIME OR AT THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE HON'BLE INCOME-TAX APPELLATE TRIBUNAL TO DECIDE THE APPEAL ACCORDING TO LAW. 4. ON PERUSAL OF GROUNDS IN THE CROSS-OBJECTIONS, THE LD AR SUBMITTED THAT GROUND NOS. 1 TO 6 ARE IN RESPECT O F BENCH MARKING ANALYSIS MADE WITH THE MISTAKEN UNDERSTANDING OF TH E FUNCTIONAL PROFILE OF ASSESSEES BUSINESS MODULE AND NON ACCE PTANCE OF ALTERNATE CONTENTION OF THE ASSESSEE IN RESPECT OF COMPARABLE S FOR THE ASST. YEAR 2005-06. 6. BEFORE US, THE LD AR FURTHER SUBMITTED THAT THE TPO HAS ERRED IN BENCH MARKING OF INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH THE COMPARABLES PROVIDING SOFTWARE SERVICES AS THE ASS ESSEE WAS ENGAGED IN PROVIDING SOFTWARE SERVICES TO ITS ASSOCIATED EN TERPRISES (AE) OUTSIDE INDIA. FURTHER, THE TPO FAILED TO APPRECIA TE THAT THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WERE IN RELATION TO SERVICES CO NO.219/B/15 6 RECEIVED BY IT FROM THE ASSOCIATED ENTERPRISES (AE) OUTSIDE INDIA IN RELATION TO THE US ONSITE REVENUE OF THE ASSESSEE COMPANY. THE TPO ON THE WRONG ASSUMPTION OF FUNCTIONAL PROFILE OF T HE ASSESSEE COMPANY HAS SELECTED THE COMPARABLES SELECTED DOES NOT MATCH WITH THE ACTUAL FUNCTIONAL PROFILE. THE LD AR REFERRED TO THE SYNOPSIS FILED IN THE COURSE OF HEARING AND DEMONSTRATED THAT THE ASSESSEE HAS BEEN RECEIVING SOFTWARE DEVELOPMENT SERVICES FROM M/S SYNOVA INNOVATIVE TECHNOLOGY . WHERE AS THE TPO HIS TRANS FER PRICING PROCEEDINGS FOR THE ASST. YEAR 2005-06 OBSERVED THA T THEY ARE MORE SCIENTIFIC IN COMPARISON TO THE ASST. YEAR 2004-05. THE LD AR EMPHASIZED ON FINDING THE CIT(A) WHO HAS OBSERVED A T PAGE 64 PARA 53 WHICH READ AS UNDER:- 53. HAD THE SAME YARDSTICK BEEN APPLIED FOR AY 2004-05, AS HAS BEEN DONE IN 2005-06, THE PROFIT MARGIN OF THE 6 COMPARABLES COULD HAVE BEEN AROUND 8%. THIS IS WHAT PRECISELY THE APPELLANT WANTED. HOWEVER, IT WAS SEEN THAT THE SIX COMPANIES WERE NO T PART OF THE 18 COMPARABLES AS THE TPO HAD ADOPTED FOR 2004-05. ONLY 3 OUT OF THE 6 COMPARABLES WERE COMMON IN 2004-05. ONLY 3 OUT OF THE 6 COMPARABLES WERE COMMON IN 2004-05 & 2005-06. OTHER 3 COMPARABLES HAD TO BE IMPORTED TO THE LIST OF COMPARABLE FOR ASST. YEAR 2004-05 AND 15 WERE TO BE DELETED WHICH REQUIRED A MASSIVE EXERCISE THOUGH TH E TPO WHO DID THE ALP ADJUSTMENT FOR 2005-06 HAS ELABORATELY DISCUSSED IN HIS ORDER AS TO HOW HE HAD APPLIED THE FILTERS AND HOW HE HAS TAKEN THE PUBLISHED DATA FROM VARIOUS SOURCES. THE EXERCISE WHICH IS DONE IN AY 2005-06 IS A MUCH MORE SCIENTIFIC EXERCISE AS COMPARED TO AY 2004-05, STIL L FOR ADOPTING THE SAME BASIS QUITE A MASSIVE EXERCIS E CO NO.219/B/15 7 HAD TO BE DONE, THAT TOO AFTER ELIMINATING 15 COMPARABLES AND ADDING 3 NEW COMPARABLES. THIS EXERCISE COULD HAVE LED TO OTHER ARGUMENTS WHICH HAD TO BE TAKEN CARE OF. ACCORDINGLY, THIS EXERCISE HAS NOT BEEN DONE AND THE PROFIT MARGIN IS WORKED OUT BASED ON THE TPO'S OWN EXERCISE AFTER ELIMINATING 3 COMPARABLES M/S SATYAM, INFOSYS AND SAT INVESTECK LTD., AFTER ALLOWING 5% MARGIN AS DIRECTED BY THE HONBLE TRIBUNAL IN SAP LABS CASE. 7. FURTHER THE LD AR ARGUED THAT THE CIT(A) HAS FAI LED TO APPRECIATE THAT THE TRANFER PRICING OFFICER (TPO) FOR THE ASST. YEAR 2005-06 HAS CONSIDERED THE CORRECT FUNCTIONAL PROFI LE OF THE ASSESSEE WITH REGARD TO ON-SITE REVENUES AND APPLIED THE APP ROPRIATE FILTERS. WHEREAS, THE OBSERVATION AND TRANSACTIONS WERE NOT CONSIDERED IN THE ASST. YEAR 2004-05. HENCE, TPO ERRED IN CONSIDERI NG THE INCORRECT FUNCTIONAL PROFILE OF THE ASSESSEE AND USAGE OF INC ORRECT FILTERS FOR THE COMPARABLES SELECTED AND ALSO IT DOES NOT MATCH WIT H THE FUNCTIONAL PROFILE OF THE ASSESSEE. THE LD AR DEMONSTRATED TH AT THE CIT(A) HAS ACCEPTED THE METHODOLOGY AT PARA 53 IN PAGE 64 OF THE ORDER IN RESPECT OF ASST. YEAR 2005-06 AS MORE SCIENTIFIC AP PROACH TO BE ADOPTED AND DISPOSED OFF THE APPEAL AND THE LD AR PRAYED FOR AN OPPORTUNITY TO CONSIDER THE FUNCTIONAL PROFILE AS D ETERMINED BY THE TPO IN THE ASST. YEAR 2005-06 AND 2006-07 AND PRAYE D FOR REMITTING DISPUTED ISSUE FOR RE-CONSIDERATION BY THE AUTHORIT IES. 8. WHEREAS THE LD DR RELIED ON THE ORDER OF THE CIT (A) AND PRAYED FOR DISMISSAL OF THE GROUNDS IN CROSS-OBJECTIONS. CO NO.219/B/15 8 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE CROSS-OBJECTIONS FILED BY THE ASSES SEE WAS DISMISSED AND ON APPEAL AS PER THE DIRECTIONS OF THE HONBLE HIGH COURT OF KARNATAKA, MATTER IS HEARD. IN THE COURSE OF HEA RING PROCEEDINGS, THE LD AR HAS REFERRED TO THE ASST. ORDERS FOR THE ASST . YEAR 2005-06 AND ASST. YEAR 2006-07 IN RESPECT OF THE FUNCTIONAL PRO FILE. THE MAIN CONTENTION OF THE LD AR THAT DUE TO WRONG FUNCTIONA L PROFILE CONSIDERED BY THE TPO, THE COMPARABLES CANNOT BE MA TCHED WITH ACTUAL THE FUNCTIONAL PROFILE OF THE ASSESSEE AND T HE SAME IS REFLECTED IN THE CHART. WE FOUND THAT THE CIT(A) HAD RELIED ON THE FUNCTIONAL PROFILE FOR THE ASST. YEAR 2005-06 AND MADE OBSERVA TIONS WHICH THE LD AR DEMONSTRATED AND HAS BEEN ACCEPTED. FURTHER THE APPLICABILITY OF FUNCTIONAL PROFILE FOR THE ASST. YEAR 2005-06 IS MORE SCIENTIFIC AND THE SAME CAN BE ADOPTED FOR THE ASST. YEAR 2004-05. T HE CIT(A) ERRED IN RE-COMPUTING AND DIRECTING OF THE TPO TO CONSIDER THE MARGIN OF THE ASSESSEE AT 3.05% AS AGAINST THE MARGIN OF 4.65%. WHEREAS, LD DR RELIED ON THE ORDER OF THE CIT(A) AND COULD NOT CON TROVERT WITH ANY NEW FINDINGS OR EVIDENCE. WE, THEREFORE CONSIDERING THE FACTUAL ASPECTS, LEGAL POSITION AND THE APPLICABILITY OF F UNCTIONAL PROFILE OF THE ASST. YEAR 2005-06 AND 2006-07. THE BASIS OF APPLICABILITY OF FUNCTIONAL PROFILE BY THE TPO FOR THE SAID ASST. YE AR 2005-06 AND 2006-07 SEEMS TO BE A CORRECT APPROACH, THEREFORE, WE, IN THE INTEREST OF SUBSTANTIAL JUSTICE. REMIT THIS DISPUTED ISSUE IN THE CROSS-OBJECTION TO THE FILE OF THE TPO TO MAKE BENCH MARKING ANALYS IS FOR THE ASST. YEAR 2004-05 IN LINE WITH THE METHODOLOGY ADOPTED F OR ASST. YEAR CO NO.219/B/15 9 2005-06 AS DISCUSSED AND THE ASSESSEE SHALL COOPER ATE IN SUBMITTING THE INFORMATION AND CLARIFICATIONS AS CALLED FOR A T THE EARLIEST FOR EARLY DISPOSAL BY THE AUTHORITIES AND WE ALLOW GROUNDS OF CROSS-OBJECTIONS FOR SELECTED ISSUE. 12. IN THE RESULT, CROSS-OBJECTION OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH JANUARY, 2019 . SD/- SD/- (JASON P BOAZ) ( PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDI CIAL MEMBER BANGALORE DATED : 11/1/2019 VMS COPY TO :1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REGI STRAR, ITAT, BANGALORE CO NO.219/B/15 10 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR. P. S ... 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT.. 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. ..