M/s. Bentley Systems India Ltd., New Delhi V. DCIT, New Delhi

CO 288/DEL/2015

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3889 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 25-06-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 02-11-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Keywords: Transfer pricing; International transaction
• Section: 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-1 NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESI DENT & SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER ITA NO.-757/DEL/2015 ( ASSESSMENT YEAR: 2010-11) DCIT CIRCLE 4(2) NEW DELHI. VS BENTLEY SYSTEMS INDIA LTD. 203, 2 ND FLOOR, OKHLA INDUSTRIAL ESTATE, PHASE-III, NEW DELHI. PAN NO. AABCB5645E & CROSS OBJECTION NO.-288/DEL/2015 (IN ITA NO. 757/DEL/2015) ( ASSESSMENT YEAR: 2010-11) BENTLEY SYSTEMS INDIA LTD. 203, 2 ND FLOOR, OKHLA INDUSTRIAL ESTATE, PHASE-III, NEW DELHI. PAN NO. AABCB5645E VS DCIT CIRCLE 4(2) NEW DELHI. REVENUE BY SH. SANJAY I. BARA, CIT DR ASSESSEE BY SH. AJIT KORDE, ADV. ORDER PER K.NARASIMHA CHARY, J.M. APPEAL IN ITA 757/DEL/2015 IS FILED BY THE REVENUE CHALLENGING THE DIRECTIONS DATED 14/11/2014 OF THE LEARNED DISPUTE RESOLUTION PANEL-1, NEW DELHI (LD. DRP) GIV EN TO THE DATE OF HEARING 21.06.2018 DATE OF PRONOUNCEMENT .06.2018 ITA NO. 757/DEL/2015 & CO NO. 288/DEL/2015 2 LD. TPO TO EXCLUDE M/S. E-ZEST SOLUTIONS AND INFINI TE DATA SYSTEM PRIVATE LIMITED FROM THE FINAL SET OF COMPAR ABLES. 2. BRIEFLY STATED RELEVANT FACTS ARE THAT THE ASSES SEE, NAMELY, BENTLEY INDIA IS ENGAGED IN MARKETING AND DISTRIBUTING BENTLEY GROUP PRODUCTS IN THE INDIAN M ARKETS, BESIDES PROVIDING LOW END SOFTWARE DEVELOPMENT , TE STING AND QUALITY ASSURANCE SERVICES TO BENTLEY USA. FOR THE ASSESSMENT YEAR 2010-11 THE ASSESSEE FILED THEIR RE TURN OF INCOME ON 20/10/2010 DECLARING A TOTAL INCOME OF RS . 3, 02, 26, 580/-AND IN VIEW OF THE INTERNATIONAL TRANSACTI ON OF THE ASSESSEE, LD. AO REFERRED THE MATTER TO THE LD. TPO FOR DETERMINATION OF THE ARMS LENGTH PRICE OF THE INTE RNATIONAL TRANSACTION. 3. THE MAIN INTERNATIONAL TRANSACTION OF THE ASSESS EE WITH ITS ASSOCIATED ENTERPRISES (AES) WAS THE PROVISION OF THE SOFTWARE DEVELOPMENT SERVICES AND IT ENABLED SERVIC ES. ASSESSEE ADOPTED TRANSACTION NET MARGIN METHOD (TNM M) AS THE MOST APPROPRIATE METHOD AND OP/TC AS THE PLI TO BENCHMARK THE INTERNATIONAL TRANSACTION RELATING TO SOFTWARE DEVELOPMENT SERVICES. THE ASSESSEE HAS ARRIVED AT A SET OF TWENTY ONE COMPANIES UNDER SOFTWARE DEVELOPMENT SEG MENT WITH AN AVERAGE MARGIN OF 11.43% BY USING THE MULTI PLE YEAR DATA. MARGIN OF THE ASSESSEE WAS WORKED OUT AT 12.6 7% AND THE ASSESSEE TREATED THE SAME AT ARMS LENGTH PRICE . 4. AFTER CONSIDERING THE COMPARABLES SUBMITTED BY T HE ASSESSEE AND ALSO CONDUCTING FRESH SURVEY, THE TRAN SFER PRICING OFFICER (LD. TPO) PREPARED THE FINALIST OF COMPARABLES ITA NO. 757/DEL/2015 & CO NO. 288/DEL/2015 3 WITH NINETEEN COMPANIES THEREIN, WHOSE PROFIT LEVEL INDICATOR WITH OP/OC CAME TO 24.31%. BASING ON THIS LD. TPO PROPOSED AN ADJUSTMENT OF RS. 1,63,60,066/-IN THE S OFTWARE DEVELOPMENT SERVICES SEGMENT. 5. WHEN THE ASSESSEE FILED OBJECTIONS BEFORE THE LD . DRP, LD. DRP CONSIDERED THE OBJECTIONS OF THE ASSESSEE A ND, INTER ALIA, GRANTED RELIEF TO THE ASSESSEE BY DIRECTING T HE LD. TPO TO EXCLUDE M/S. E-ZEST SOLUTIONS AND INFINITE DATA SYS TEM PRIVATE LIMITED FROM THE FINAL SET OF COMPARABLES. CHALLENGING SUCH A DIRECTION, REVENUE PREFERRED THE APPEAL. THE ASSESSEE, HOWEVER, FILED CROSS OBJECTIONS DISPUTING THE CORRE CTNESS OF THE ACTION OF LD. TPO IN NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE ASSESSEE, NOT ACCEPTING THE USE O F MULTIPLE YEAR DATA, AND THE FILTERS ADOPTED BY THE LD. TPO A ND ACCEPTED BY THE LD. DRP WHILE FINALISING THE SET OF COMPARABLES. 6. AT THE OUTSET, LD. AR BROUGHT IT TO OUR NOTICE T HAT IS AN INFRUCTUOUS APPEAL FILED BY THE DEPARTMENT, BECAUSE EVEN IF THE COMPANIES, NAMELY, M/S. E-ZEST SOLUTIONS AND IN FINITE DATA SYSTEM PRIVATE LIMITED ARE RETAINED IN THE FIN AL SET OF COMPARABLES, STILL THE DIFFERENCE IN PLI WOULD BE + /-5%, WITHIN THE LIMITS OF THE SAFE HARBOUR PROVISION E MBODIED IN THE RULES FRAMED BY THE BOARD IN EXERCISE OF ITS PO WERS UNDER SECTION 92 CA (3), AS SUCH DELVING DEEPER INTO THE MATTER IS NOT WARRANTED. HE SUBMITTED THAT THE ARMS LENGTH MA RGIN AS PER THE DIRECTIONS OF THE LD. DRP IS 14.13% WHEREAS THE SAME AFTER INCLUDING THESE TWO COMPANIES WOULD BE 17.95% . HE FILED A WORKING OF THIS CALCULATION. ITA NO. 757/DEL/2015 & CO NO. 288/DEL/2015 4 7. THOUGH LD. DR DOES NOT DISPUTE THE FACTUAL AVERM ENT THAT EVEN IF WE RETAIN THE TWO COMPANIES THE EXCLUS ION OF WHICH IS CHALLENGED IN THE APPEAL, STILL THE DIFFER ENCE BETWEEN THE PLI OF THE ASSESSEE AND THAT OF THE COMPARABLES WOULD BE +/ -5%, WITHIN THE SAFE HARBOUR PROVISION EMBODIE D IN THE RULES FRAMED BY THE BOARD IN EXERCISE OF ITS POWERS UNDER SECTION 92 CA (3), HE SUBMITTED THAT THE EXCLUSION OF THESE TWO COMPANIES FROM THE LIST OF COMPARABLES IS NOT J USTIFIABLE BECAUSE THIS TWO COMPANIES ARE ALSO ENGAGED IN THE SIMILAR BUSINESS OF SOFTWARE DEVELOPMENT AND ARE FULLY COMP ARABLES. 8. LD. AR FILED A COPY OF THE ORDER DATED 19/10/201 6 PASSED BY THE HONBLE JURISDICTIONAL HIGH COURT IN PCIT VS. AMERIPRISE INDIA PRIVATE LIMITED IN ITA NO. 461 OF 2016 WHEREIN THE HONBLE HIGH COURT HELD THAT IN A SITUA TION WHERE EVEN IF THE FIGURES OF COMPARABLES WERE TO BE INCLU DED, NO ADJUSTMENT WOULD BE PERMISSIBLE DUE TO THE FACT THA T THE MARGIN OF VARIATION WOULD BE WITHIN THE LIMITS OF T HE SAFE HARBOUR PROVISION EMBODIED IN THE RULES FRAMED BY THE BOARD IN EXERCISE OF ITS POWERS UNDER SECTION 92 CA (3), NO QUESTIONS OF LAW ARISE. 9. IN THIS MATTER, IF THE SUBMISSION OF LD. AR TURN S OUT TO BE CORRECT, THEN THE GROUNDS OF APPEAL AS WELL AS T HE CROSS OBJECTION WOULD BECOME ACADEMIC AND DO NOT WARRANT ANY ADJUDICATION. WE, THEREFORE, INSTEAD OF DELVING DEE PER INTO THE MERITS OF THE CASE AND TO ADJUDICATE THE ACADEMIC I SSUE, DEEM IT JUST AND NECESSARY TO REMAND THE MATTER TO THE FILE OF LD. TPO FOR VERIFICATION OF THE CORRECTNESS OR OTHE RWISE OF THE SUBMISSION OF THE ASSESSEE THAT EVEN IF THE COMPANI ES, ITA NO. 757/DEL/2015 & CO NO. 288/DEL/2015 5 NAMELY, M/S. E-ZEST SOLUTIONS AND INFINITE DATA SY STEM PRIVATE LIMITED ARE RETAINED IN THE FINAL SET OF CO MPARABLES, STILL THE DIFFERENCE IN PLI WOULD BE +/-5%, WITHIN THE LIMITS OF THE SAFE HARBOUR PROVISION EMBODIED IN THE RULES FRAMED BY THE BOARD IN EXERCISE OF ITS POWERS UNDER SECTION 9 2 CA (3), AND DOES NOT NECESSITATE ANY ADJUSTMENT. WE DO ORDE R SO ACCORDINGLY. 10. WITH THE OBSERVATIONS, THE APPEAL OF THE REVENU E IS ALLOWED FOR STATISTICAL PURPOSES AND THE CROSS OBJE CTIONS ARE DISMISSED AS INFRUCTUOUS. ORDER PRONOUNCED IN THE OPEN COURT ON .06.2018 (R.S. SYAL) (K.N. CHARY) VICE PRESIDENT JUDICIAL MEMBER DATED: .06.2018 *KAVITA ARORA ITA NO. 757/DEL/2015 & CO NO. 288/DEL/2015 6 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION 22.06.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER .06.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P S/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER