M/s. Smart Trust Infosolutions (P) Ltd, New Delhi V. ACIT, New Delhi

CO 285/DEL/2012

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 9157 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 4 month(s) 20 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 20-12-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 12-12-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 30-07-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RENUKA JAIN GUTPA
• Assessee Lawyers: MANOJ K PARDASHNI
• Keywords: Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI S.V. MEHROTRA ITA NO. 4172/DEL/2009 A.YR. 2005-06 ACIT, CIRCLE 9(1), VS. M/S SMART TRUST INFOSOLU TIONS P. LTD., NEW DELHI. W-129, GROUND FLOOR, GREATER KAILASH, PART-II, NEW DELHI-48. PAN NO. AAICS 3801 J AND C.O. NO. 285/DEL/2012 ( IN ITA NO. 4172/DEL/2009 ) A.YR. 2005-06 M/S SMART TRUST INFOSOLUTIONS P. LTD., VS. ACIT, C IRCLE 9(1), W-129, GROUND FLOOR, GREATER KAILASH, NEW DELHI. PART-II, NEW DELHI-48. ( APPELLANT ) ( RESPONDENT ) DEPARTMENT BY : SMT. RENUKA JAIN GUTPA SR. DR ASSESSEE BY : SH. MANOJ K. PARDASHNI ADV. O R D E R PER R.P. TOLANI, J.M: : THESE ARE REVENUES APPEAL AND ASSESSEES CROSS-OB JECTION AGAINST CIT(A)S ORDER DATED 26-8-2009 RELATING TO A.Y. 20 05-06. 2. THE ASSESSEES CROSS OBJECTION BEING ONLY IN SUP PORT OF CIT(A)S ORDER, IS DISMISSED AS ACADEMIC AND INFRUCTUOUS. 3. SOLE EFFECTIVE GROUND RAISED BY THE REVENUE IS A S UNDER: LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED, IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IN DELE TING THE 2 ADDITIONS OF RS. 5,49,174/- MADE BY THE AO ON ACCOU NT OF ARMS LENGTH PRICE. 4. BRIEF FACTS ARE: DURING THE COURSE OF ASSESSMENT ASSESSEE WAS ASKED TO JUSTIFY ITS ALP OF ITS INTERNATIONAL TRANSACTIONS W ITH THE ASSOCIATED ENTERPRISES (AES) AND WORKING OF WEIGHTED AVERAGE N CP (%) OF THE COMPANY WHICH WERE FILED BY IT AS UNDER: S. NO. COMPANY NAME MARCH 03 MARCH 04 MARCH 05 WEIGHTED AVERAGE 1. AJCON GLOBAL SERVICES LTD. 15.79 16.00 36.67 24 .32 2. ALPHAGEO (INDIA) LTD. 37.13 46.50 27.83 35.44 3. BIOTECH CONSORTIUM INDIA LTD. -15.30 2.30 0.00 - 3.55 4. FORTUNE INFOTECH LTD. 108.48 32.00 15.13 47.04 5. FOURTH GENERATION INFORMATION SYSTEMS LTD. 0.23 -15.16 -98.95 -34.19 6. FUTURE SOFTWARE LTD. 1.98 NA NA 1.98 ARITHMETIC MEAN 11.84 4.1. ASSESSING OFFICER, HOWEVER WAS OF THE VIEW THA T THE WEIGHTED AVERAGE OF COMPANIES SELECTED BY THE ASSESSEE RANGE FROM -1 0.47 TO 18.92% WITH AN ARITHMETIC MEAN OF8.40%. SIMILARLY, THE WEIGHTED AV ERAGES OF THE COMPANIES SELECTED BY THE UNDERSIGNED RANGE FOR 034 .19% TO 47.04% WITH AN ARITHMETIC MEAN OF 11.84%. 4.2. THE ARITHMETIC MEAN OF 8.4% CALCULATED BY THE ASSESSEE COMPANY IS NOT AUTHENTIC. FIRSTLY, THE 9 COMPANIES CHOSEN BY T HE ASSESSEE COMPANY HAVE NON-COMPARABLE FUNCTIONS. SECONDLY, THEIR WEIGHTED AVERAGES DIFFER WIDELY. SIMILAR IS THE POSITION WITH THE COMPANIES CHOSEN B Y THE UNDERSIGNED WHERE THE WEIGHTED AVERAGE AGAIN DIFFER WIDELY. THEREFORE , ASSESSING OFFICER CHOSE 10 COMPANIES WITH THE DESCEDNDING WEIGHTED AVERAGES OUT OF THE ABOVE 15 COMPANEIS (9 CHOSEN BY THE ASSESSEE + 6 CHOSEN BY T HE A.O.). FOR THAT 3 MATTER WHY NOT CHOSE ONLY 5 COMPANIES WITH DESCENDI NG WEIGHTED AVERAGES. THUS THE POSSIBILITIES OF SUCH CHOICE ARE ENDLESS. 4.3. ASSESSING OFFICER FURTHER OBSERVED THAT THE CA SE OF M/S MANTAS (INDIA) PVT. LTD., WHICH HAS SIMILAR LINE OF BUSINESS, HAS OFFERED 15% WEIGHTED AVERAGE IN ITS COMPUTATION OF ARMS LENGTH PRICE. T HIS CASE IS ASSESSED IN THIS CIRCLE. 4.4. THEREAFTER THE ASSESSING OFFICER TOOK UP THE C ASE OF M/S MANTAS (INDIA) PVT. LTD., WITH THE IDENTIFIABLE SET OF COM PARABLE COMPANIES AND WEIGHTED AVERAGE FOR THE YEARS ENDED 2001 TO 2005 A ND ON THAT BASIS ARRIVED AT ARITHMETIC MEAN OF 14.72%. THE DETAILED CHART OF IDENTIFIABLE COMPARABLES FOR ABOVE YEARS IS REPRODUCED BY THE ASSESSING OFFI CER IN HIS ORDER. CONSIDERING THE ARITHMETIC MEAN OF 14.72%, WEIGHTED AVERAGE OF 15% WAS APPLIED TO ASSESSEES CASE, RESULTING IN ADDITION O F RS. 5,49,174/- TO THE ALP DECLARED BY THE ASSESSEE. 4.5. AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL TO THE CIT(A), WHO OBSERVED AS UNDER: (I) RULE 10D(1)(F) OF THE ALP RULES PRESCRIBES THE MAND ATORY NATURE OF CONTEMPORANEOUS DATA READ WITH RULE 10B(4); (II) THE MANDATORY AND ABSOLUTE REQUIREMENT OF LAW TO US E CURRENT YEAR FINANCIAL DATA CANNOT BE DISPENSED WITH. RELIANCE W AS PLACED ON ITAT DECISIONS IN THE CASES OF MENTOR GRAPHIC PVT. LTD.; AND HONEYWELL AUTOMATION INDIA LTD. VS. DCIT (2009-TIOL -104- ITAT-PUNE) DATED 10-02-2009. (III) ASSESSING OFFICER HAS ERRED IN USING MULTIPLE YEARS DATA AND DID NOT BRING ON RECORD ANY COGENT, RELEVANT AND RELIABLE E VIDENCE TO 4 SUGGEST THAT THE PRECEDING FIVE YEARS DATA WAS IN A NY MANNER RELEVANT. 4.6. IN CONSIDERATION OF ABOVE, CIT(A) UPHELD THE ASSESSEES WORKING OF CURRENT YEAR DATA TO BE ACCEPTABLE, WHIC H IS AS UNDER: PARTICULARS PROFITABILITY OF SIPL FOR FY2004-05 PROFITABILITY OF COMPARABLES OF MANTAS INDIA PVT. LTD. FOR FY 2004-05 MINUS 5% RANGE PLUS 5% RANGE OPERATING INCOME 13,102,926 13,618,861 12,937,918 14,299,804 OPERATING EXPENSES 11,871,392 11,871,392 11,871,392 11,871,392 NET PROFIT(A)-(B) 1,231,534 1,747,469 1,066,526 2,4 28,412 NCP MARGIN 10.37% 14.72% 8.98% 20.46% 4.7. CIT(A) FURTHER HELD THAT BY USING CURRENT YEAR DATA THE VALUATION OF INTERNATIONAL TRANSACTIONS FALL WITHIN THE RANGE OF PLUS MINUS 5% AND FOLLOWING THE PROVISO TO SEC. 92C(2), THE ADDITION MADE BY ASSESSING OFFICER TOWARDS ALP WAS DELETED. AGGRIEVED, REVENUE IS BEFORE US. 5. LD. DR RELIED ON THE ORDER OF ASSESSING OFFICER. 6. LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUES T HAT THE ISSUE ABOUT USE OF CURRENT YEAR FINANCIAL DATA FOR ASCERTAINING THE COMPARABILITY OF ALP IS A SETTLED LAW, LD. CIT(A) HAS EVALUATED THE ALP AS PER THIS SETTLED LAW. THERE IS NO INCONSISTENCY IN HIS ORDER, WHICH DESER VES TO BE UPHELD. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE FIND MERIT IN THE ARGUMENT OF LD. COUNSEL. IT IS SETTLED LAW THAT WHILE WORKING OUT THE ALP OF AN ASSOCIATED ENTERPRISE, 5 MULTIPLE YEAR DATA CANNOT BE USED AND ONLY CURRENT YEAR DATA IS TO BE USED. ON THE BASIS OF CURRENT YEARS DATA, THE CIT(A) HAS DEMONSTRATED FROM THE CHART MENTIONED ABOVE THAT LOOKING AT THE OVERALL P ICTURE THE ASSESSEES ALP WORKING FALLS WITHIN THE PLUS MINUS 5% AS PROVIDED BY PROVISO TO SEC. 92C(2). WE SEE NO INFIRMITY IN HIS ORDER, WHICH IS UPHELD. 8. IN THE RESULT, REVENUES APPEAL AS WELL AS ASSES SEES CROSS OBJECTION ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 20-12-2013. SD/- SD/- ( S.V. MEHROTRA ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 20-12-2013. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR