First Advantage Global Operating Centre Private Limited, Bangalore V. Deputy Commissioner of Income-tax, Bangalore

CO 38/BANG/2016

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 2898 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 9 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 24-05-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 15-07-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, B E NGAL U R U BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER IT (TP) A NO. 175 / BANG/20 14 (ASSESSMENT YEAR: 20 04 - 05) AND CROSS OBJN.NO.38/BANG/2016 (IN IT(TP)A NO.189/BA NG/2014) (ASSESSMENT YEAR: 2004 - 05) FIRST ADVANTAGE GLOBAL OPERATING CENTER P VT. LTD. (FORMERLY KNOWN AS FIRST ADVANTAGE OFFSHORE SERVICES PVT. LTD.) LEVEL 1, EXPLORER BLDG. INTERNATIONAL TECH PARK,WHITEFIELD ROAD, BENGALURU. ... APPELLANT / CROSS OBJECTOR VS. DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE 11(3), BENGALURU. RESPONDENT AND IT (TP) A NO. 189/ BANG/20 14 (ASSESSMENT YEAR: 2004 - 05) DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE 11(3), BENGALURU. ... A PPELLANT VS. FIRST ADVANTAGE GLOBAL OPERATING CENTER PVT.LTD. BENGALURU. RESPONDENT ASSESSEE BY : SHRI NAGESHWAR RAO, ADVOCATE. REVENUE BY : SHRI G.KAMALADAR, STANDING COUNSEL DATE OF HEARING : 11/04/2017 DATE OF PRONOUNCEME NT : 24 /05/2017 IT (TP A NO S . 175 & 189 /BANG/201 4 PAGE 2 OF 4 O R D E R PER I NTURI RAMA RAO, AM : THESE ARE CROSS APPEALS FILED BY THE ASSESSEE - COMPANY AS WELL AS THE REVENUE AND THE CROSS OBJECTIONS BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE CIT(A) - IV, BENGALURU, DATED 07/01/2014 FOR THE ASSESSMENT YEAR 2004 - 05. 2. BRIEFLY FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY DULY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956. IT IS A WHOLLY OWNED SUBSIDIARY OF FIRST ADVANTAGE CORPORATION, USA. IT IS ENGAGED IN THE B USINESS OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES AND IT ENABLED SERVICES (ITES) TO ITS AE ON COST + BASIS FOR SERVICES RENDERED. 3. RETURN OF INCOME FOR THE ASSESSMENT YEAR 2004 - 05 WAS FILED ON 18/10/2004 DECLARING A TOTAL INCOME OF RS.13,93,225/ - . THE ASSESSEE - COMPANY ALSO REPORTED THE FOLLOWING INTERNATIONAL TRANSACTIONS IN FORM 3CEB: IT (TP A NO S . 175 & 189 /BANG/201 4 PAGE 3 OF 4 THE ASSESSEE - COMPANY SOUGHT TO JUSTIFY THE CONSIDERATION RECEIVED FOR THE ABOVE INTERNATIONAL TRANSACTION WITH ITS AE TO BE AT ARM S LENGTH. THE ASSESSEE - COMPANY SUBMITTED THAT TRANSFER PRICING (TP) STUDY REPORT ADOPTING CUP METHOD AS THE MOST APPROPRIATE METHOD. THE ASSESSEE - COMPANY S PROFIT MARGIN WAS COMPUTED AT 10.76% ON THE BASIS OF OP/OC AS PLI AND 9.71% OF OP/TO SALES. THE ASSESSEE - COMPANY HAD CHOSEN THREE COMPARABLES IN SOFTWARE DEVELOPMENT SERVICES SEGMENT AND 2 IN ITES SEGMENT. THE ASSESSEE - COMPANY CLAIMED THAT THE SAME WAS COMPARABLE WITH OTHER COMPANIES RENDERING SOFTWARE DEVELOPMENT SERVICES AND ITES. THE ASSESSING OFFICER REFERRED THE MATTER TO THE TRANSFER PRICING OFFICER (TPO) FOR THE PURPOSE OF BENCH MARKING THE ABOVE INTERNATIONAL TRANSACTION. THE TPO REJECTED THE TP STUDY REPORT SUBMITTED BY THE ASSESSEE - COMPANY AND ALSO REJECTED THE CUP METHOD AS THE MOST APPROPRIATE METHOD. THE TPO PROCEEDE D TO IDENTIFY SEPARATE SET OF COMPARABLES AND PASSED THE ORDER U/S 92CA DATED 22/12/2006 MAKING TRANSFER PRICING ADJUSTMENT AT RS.1,96,19,359/ - IN RESPECT OF ITES SEGMENT. THE TPO HAD UNDERTAKEN FAR ANALYSIS OF COMPARABLES IN RESPECT OF SOFTWARE DEVELOPME NT SERVICES SEGMENT BUT SUGGESTED TP ADJUSTMENT IN RESPECT OF ITES SEGMENT. THERE IS NO FINDING OF TPO ON SOFTWARE SEGMENT. THERE IS NO FAR ANALYSIS OF COMPARABLES IN ITES SEGMENT. IN THE CIRCUMSTANCES, WE ARE UNABLE TO SUSTAIN THE ORDER OF THE TPO . T H EREFORE, IN THE INTEREST OF JUSTICE, WE REMAND THE MATTER TO THE TPO F OR FRESH BENCH MARKING ANALYSIS IN RESPECT OF BOTH SOFTWARE SEGMENT AND ITES SEGMENT AFTER AFFORDING DUE OPPORTUNITY TO THE ASSESSEE - COMPANY. IT (TP A NO S . 175 & 189 /BANG/201 4 PAGE 4 OF 4 5. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE - COMPANY AND THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24 TH MAY , 201 7 SD/ - SD/ - (VIJAY PAL RAO) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE : B EN GAL URU D A T E D : 24 /0 5 /2017 SRINIVASULU, SPS COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) - 4 CI T 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BANGALORE