Xpanxion Internationaal Pvt. Ltd., Pune V. Deputy Commissioner of Income-tax, Circle - 7, Pune

CO 33/PUN/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5719 (ITAT-PUNE)
• Duration Of Justice: 11 month(s) 21 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 14-05-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 04-04-2019
• Assessment Year: 2011-2012
• Appeal Filed On: 24-05-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S B PRASAD
• Assessee Lawyers: DARPAN KIRPLANI
• Keywords: Transfer pricing; Condonation of delay
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKARA RAO , AM . / ITA NO. 666 /P U N/201 6 / ASSESSMENT YEAR : 20 11 - 12 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 7, PUNE . / APPELLANT VS. XPANXION INTERNATIONAL PVT. LTD., SERVER SPACE, 4 TH FLOOR, A.G. TECHNOLOGY PARK, OFF I.T.I. ROAD, AUNDH, PUNE 07 . / RESPONDENT PAN: AAACI3907R . /CO NO. 33 /PUN/201 8 / ASSESSMENT YEAR : 2011 - 12 (OUT OF ITA NO. 666 /PUN/2016 ) XPANXION INTERNATIONAL PVT. LTD., SERVER SPACE, 4 TH FLOOR, A.G. TECHNO LOGY PARK, OFF I.T.I. ROAD, AUNDH, PUNE 07 / CROSS OBJECT OR PAN: AAACI3907R VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 7, PUNE . / RESPONDENT ASSESSEE BY : SHRI DARPAN KIRPLANI REVENUE BY : SHRI S.B. PRA SAD , CIT / DATE OF HEARING : 04 . 0 4 . 201 9 / DATE OF PRONOUNCEMENT: 14 . 0 5 .201 9 ITA NO. 666 /P U N/20 1 6 CO NO. 33 /PUN/2018 2 / ORDER PER SUSHMA CHOWLA, J M : THE APPEAL FILED BY REVENUE IS AGAINST THE ORDER OF D CIT , CIRCLE - 7 , PUNE , DATED 2 9 . 0 1 .201 6 RELA TING TO ASSESSMENT YEAR 20 11 - 12 PASSED UNDER SECTION 143(3) R.W.S. 144C(1 3 ) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . THE ASSESSEE HAS FILED CROSS OBJECTIONS AGAINST THE APPEAL OF REVENUE. 2 . THE APPEAL FILED BY REVENUE AND CROSS OBJECTION FILED BY ASSESSEE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE REVENUE IN ITA NO. 666 /PUN/2016 HAS RAISED THE FOLLOWING GROUND S OF APPEAL: - 1. WHETHER THE DRP WAS RIGHT IN LAW AND ON FACTS IN EXCL UDING FUNCTIONALLY COMPARABLE COMPANIES. 2. WHETHER THE DRP WAS RIGHT IN LAW AND ON FACTS IN INCLUDING COMPANIES WHICH ARE NOT FUNCTIONALLY COMPARABLE. 3. WHETHER THE DRP WAS RIGHT IN LAW AND ON FACTS IN EXCLUDING FUNCTIONALLY COMPARABLE COMPANIES ON THE GROUND OF NON AVAILABILITY OF SEGMENTAL DATA, WHEN THE ENTIRE RANGE OF ACTIVITY OF THE COMPARABLE WAS IN THE FIELD OF SOFTWARE SERVICES. 4. DID THE DRP FALL INTO ERROR IN NOT APPRECIATING THE TERM OF RULES 10B(2) OF THE INCOME - TAX RULES, 1962 REGARDING F UNCTIONAL COMPARABILITY. 5. DID THE DRP FALL INTO ERROR IN NOT APPRECIATING THE SAFE HARBOUR GUIDELINES ISSUED BY CBDT REGARDING TURNOVER CRITERIA. 4 . THE ASSESSEE IN CO NO. 33 /PUN/2018 HAS RAISED THE FOLLOWING GROUND S OF OBJECTION: - 1.1 THE LD.AO/LD. TPO HAD ERRED ON FACTS AND IN LAW IN COMPARING / BENCHMARKING THE TRANSACTIONS OF THE CAPTIVE SOFTWARE DEVELOPMENT SUPPORT SERVICES OF THE RESPONDENT WITH COMPANIES OPERATING AS FULL - FLEDGED ENTREPRENEURS WITHOUT CONSIDERING THE DIFFERENCES IN THE FUNCTIONS P ERFORMED, ASSETS EMPLOYED AND RISK UNDERTAKEN BY THE RESPONDENT VIS - - VIS COMPARABLE COMPANIES. 1.2 THE LD. AO/LD. TRANSFER PRICING OFFICER (LD. TPO) HAS ERRED IN NOT CONSIDERING RESPONDENT EXPORT SEGMENTS MARGIN. THE LD. DISPUTE RESOLUTION PANEL (LD . PANEL) ERRED IN CONFIRMING THE SAME. ITA NO. 666 /P U N/20 1 6 CO NO. 33 /PUN/2018 3 5. THE APPEAL OF REVENUE IS FILED AFTER DELAY OF 14 DAYS. THE REVENUE AUTHORITIES HAVE FILED AN APPLICATION FOR CONDONATION OF DELAY IN FILING THE APPEAL LATE BEFORE THE TRIBUNAL. IN VIEW OF THE REASONS MENTIONED, THE DELAY IN FILING THE APPEAL IS CONDONED. THE REVISED GROUNDS OF APPEAL FILED BY THE REVENUE ARE PLACED ON RECORD. 6. THE FIRST ISSUE RAISED VIDE GROUNDS OF APPEAL NO.1 TO 3 IS AGAINST ORDER OF DISPUTE RESOLUTION PANEL (DRP) IN DIRECTING INCLUSION OF M AVERIC SYSTEMS LTD. IN THE FINAL LIST OF COMPARABLES. THE SECOND ISSUE RAISED VIDE GROUND OF APPEAL NO.4 IS AGAINST ORDER OF DRP IN DIRECTING INCLUSION OF SILVERLINE TECHNOLOGIES LTD. IN THE FINAL LIST OF COMPARABLES. 7. THE LEARNED AUTHORIZED REPRESEN TATIVE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT IN CASE INCLUSION OF MAVERIC SYSTEMS LTD. IS ALLOWED IN THE HANDS OF ASSESSEE, THEN MARGINS SHOWN BY ASSESSEE WOULD BE WITHIN +/ - 5% OF MARGINS SHOWN BY THE FINAL LIST OF COMPARABLES. HE FURTHER POINT ED OUT THAT IN CASE FIRST ISSUE OF MAVERIC SYSTEMS LTD. IS ALLOWED, THEN SECOND ISSUE RAISED BY REVENUE AND THE GROUNDS OF OBJECTION RAISED BY ASSESSEE IN CO WOULD BECOME ACADEMIC IN NATURE. HENCE, WE PROCEED TO DECIDE GROUNDS OF APPEAL NO. 1 TO 3 FIRST. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES. THE ASSESSEE HAD PICKED UP TNMM METHOD TO BENCHMARK ITS INTERNATIONA L TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES. THE MARGINS SHOWN BY ASSESSEE WERE 12.48% AND THE MARGINS SHOWN BY COMPARABLES AFTER DIRECTIONS OF DRP WERE 14.61%. IT IS THE CASE OF ASSESSEE THAT THE SAID CONCERN MAVERIC SYSTEMS LTD. WAS ENGAGED IN DEVEL OPMENT AND ITA NO. 666 /P U N/20 1 6 CO NO. 33 /PUN/2018 4 TESTING AND HENCE, IS NOT COMPARABLE TO THE ASSESSEE. OUR ATTENTION WAS DRAWN BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE TO PAGE 1 OF ORDER OF TPO, WHEREIN HE WHILE MENTIONING THE PROFILE OF ASSESSEE POINTED OUT THAT THE ASSESSEE DEVELOPS DESIGNS AND TESTING SOFTWARE FOR ASSOCIATED ENTERPRISES. HOWEVER, AT PAGE 4 OF TPOS ORDER WHILE REFERRING TO THE FUNCTIONS PERFORMED, THE TPO MENTIONED THE ASSESSEE TO BE INVOLVED IN SOFTWARE DEVELOPMENT SERVICES, WHICH INCLUDES CODING AND TEST ING. IT WAS THE CASE OF ASSESSEE BEFORE THE DRP THAT THE TPO HAD NOT ANALYZED FUNCTIONAL ACTIVITIES OF SAID CONCERN PROPERLY, WHEREIN MAVERIC SYSTEMS LTD. WAS ENGAGED IN SOFTWARE DEVELOPMENT SERVICES ONLY AS IS CLEAR FROM ITS ANNUAL REPORT. THE DRP VIDE PARAS 3.3.2 AND 3.3.3 AT PAGE 6 OF ITS ORDER HAS REFERRED TO THE FUNCTIONALITY OF THE SAID CONCERN BEING IN THE FIELD OF SOFTWARE DEVELOPMENT SERVICES ONLY AND MERELY BECAUSE CERTAIN EXPENSES ARE MENTIONED AS PROJECT EXPENSES AND CAPITAL WORK - IN - PROGRESS I N THE FINANCIAL STATEMENTS, WOULD NOT ALTER THE FUNCTIONAL PROFILE OF THE COMPANY, WHICH WAS CLEARLY STATED IN THE SCHEDULE TO THE PROFIT AND LOSS ACCOUNT AND NOTES TO ACCOUNTS. SUCH EXPENSES RELATE TO EITHER PROJECTS FOR CREATION OF INFRASTRUCTURE FOR TH E COMPANY OR R&D ACTIVITIES AND THE SAID INFORMATION COULD NOT BE USED TO HOLD THE SAID CONCERN TO BE FUNCTIONALLY DIFFERENT. 9. WE FIND THAT THE TRIBUNAL IN THE CASE OF ACIT VS. M/S. MSC SOFTWARE CORPORATION OF INDIA PVT. LTD. IN ITA NO.577/PUN/2015 AND CROSS APPEAL IN ITA NO.592/PUN/2015, RELATING TO ASSESSMENT YEAR 2010 - 11, ORDER DATED 24.10.2018 IN PARA 14 HAD DECIDED SIMILAR ISSUE OF FUNCTIONAL COMPARABILITY OF MAVERIC SYSTEMS LTD. TO THE CONCERN ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES. AF TER ANALYZING THE FUNCTIONALITY OF SAID CONCERN AND IN TURN, RELYING ON THE OTHER DECISIONS OF PUNE BENCH OF TRIBUNAL, MAVERIC SYSTEMS LTD. WAS FOUND TO BE FUNCTIONALLY COMPARABLE TO THE CONCERN PROVIDING ITA NO. 666 /P U N/20 1 6 CO NO. 33 /PUN/2018 5 SOFTWARE DEVELOPMENT SERVICES. FOLLOWING THE SAME PARITY OF REASONING, WE UPHOLD THE ORDER OF DRP IN THIS REGARD AND DISMISS GROUNDS OF APPEAL NO.1 TO 3 RAISED BY REVENUE. 10. IN VIEW OF THE CONCESSION OF LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT IN CASE MAVERIC SYSTEMS LTD. IS INCLUDED IN THE FINAL LIST OF COMPARABLES, THEN THE MARGINS OF ASSESSEE WOULD BE WITHIN +/ - 5% MEAN MARGINS OF COMPARABLES, WE DO NOT ADJUDICATE GROUND OF APPEAL NO.4 RAISED BY REVENUE AND THE ISSUES RAISED BY ASSESSEE IN CROSS OBJECTIONS BEING ACADEMIC, THEY ARE DISMISSED. 11 . IN THE RESULT, THE APPEAL OF REVENUE AND CROSS OBJECTIONS OF ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON THIS 14 TH DAY OF MA Y , 201 9 . SD/ - SD/ - (D.KARUNAK ARA RAO) (SUSHMA CHOWL A ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 14 TH MAY , 201 9 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT ; 2. THE RESPONDENT; 3. THE DRP - 3, WZ MUMBAI ; 4. THE PCIT - 4 , PUNE ; 5. THE DR A , ITAT, PUNE; 6. GUARD FILE. / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE