Hitachi Solutions India Private Limited,(Earlier Known as Ignify Software Pvt.Ltd), Pune V. Deputy Commissioner of Income-tax, Circle-11, Pune

CO 59/PUN/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6312 (ITAT-PUNE)
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 25-01-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 23-01-2019
• Assessment Year: 2011-2012
• Appeal Filed On: 08-10-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S B PRASAD
• Keywords: Transfer pricing; International transaction
• 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 . 512 /PUN/201 6 ASSESSMENT YEAR : 20 11 - 12 DEPUTY COMMISSIONER OF INCOME TAX CIR CLE 11, PUNE . / APPELLANT VS. M/S IGNIFY SOFTWARE PVT. LTD. 403, C - WING, 4 TH FLOOR, KPCT BUILDING, FATIMANAGAR, WANOWORIE, PUNE - 411013. PAN: AAACZ1544R . / RESPONDENT CROSS OBJECTION NO. 59/PUN/2018 (ARISING O UT OF ITA NO.512/PUN/2016 (ASSESSMENT YEAR 2011 - 12) HITACHI SOLUTIONS INDIA PVT. LTD. (EARLIER KNOWN AS M/S IGNIFY SOFTWARE PVT. LTD. ) UPPER GROUND LEVEL, MAGARPATTA TOWNSHIP DEVELOPMENT AND CONSTRUCTIONS CO.LTD.SEZ VILLAGE HADAPSAR, TALUKA HAVELI, PUNE - 411013 PAN: AAACZ1544R . / APPELLANT VS. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 11, PUNE . / RESPONDENT REVENUE BY : SHRI S.B. PRASAD, CIT ASSESSEE BY : SHRI KETAN VED , AR / DATE OF HEARING : 23 .0 1 .201 9 / DATE OF PRONOUNCEMENT: 25 .01.2019 I TA NO . 512/PUN/2016 A ND CO NO. 59/PUN/2018 2 / ORDER PER SUSHMA CHOWLA, J M : THE APPEAL FILED BY THE REVENUE IS AGAINST THE ORDER OF ASSESSING OFFICER DATED 27.01.2016 UNDER SECTION 143(3) READ WITH SECTION 144C(13) OF THE INCOME TAX ACT ( HERE IN AFT ER REFERRED TO AS IT ACT) . THE ASSESSEE HAS FILED CROSS OBJECTIONS AGAINST THE APPEAL FILED BY THE REVENUE. 2 . THIS ISSUE RAISED IN THE APPEAL FILED BY THE REVENUE IS AGAINST THE ORDER OF DRP IN INCLUDING CERTAIN COMPARABLES FOR BENCHMARKING T HE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE . 3 . THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE AGAINST REJECTION / SELECTION OF CERTAIN COMPARABLES IN THE FINAL LIST OF COMPARABLE DRAWN BY THE AO / DRP / TP . 4 . BRIEFLY, IN T HE FACTS OF THE PRESENT CASE THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF WEB SITE SERVICES, SUPPORT CENTRE, REVENUE ACCOUNTING, DATA PROCESSING, SOFTWARE PRODUCT AND RELATED SERVICES. THE COMPANY PROVIDES SOFTWARE DEVELOPMENT SUPPORT SERVICES TO IG NIFY USA . THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY. THE AO MADE REFERENCE UNDER SECTION 92CA(1) OF THE ACT. THE ASSESSEE HAD APPLIED TNMM METHOD AS THE MOST APPROPRIATE METHOD TO BENCHMARK THE INTERNATIONAL TRANSACTION OF PROVISION OF SOFTWARE DE VELOPMENT SERVICES OF RS. 15.96 CRORE. THE PLI APPLIED BY THE ASSESSEE WAS OPERATING PROFITS OVER OPERATING COST. THE MARGIN OF THE ASSESSEE COMPANY WAS 17.96%. THE ASSESSEE HAD INITIALLY APPLIED THREE YEARS AVERAGE MARGINS OF THE COMPARABLE COMPANIES SEL ECTED BY IT , BUT LATER HAD APPLIED SINGLE YEAR MARGIN AND THE MEAN MARGIN WAS 10.73%. THE ASSESSEE HAD SELECTED ELEVEN CONCERNS AS COMPARABLE. THE TPO, HOWEVER, I TA NO . 512/PUN/2016 A ND CO NO. 59/PUN/2018 3 EXCEPT ONE CONCERN, ACROPETAL TECHNOLOGIES LIMITED , HAD REJECTED ALL THE OTHER COMPANIES SELECT ED BY THE ASSESSEE AND HAD FINALLY SELECTED EIGHT CONCERNS AS FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND THE MEAN MARGINS OF THE COMPARABLES WORKED OUT TO 25.47%. THE DRP HAD ACCEPTED THE PLEA OF THE ASSESSEE TO SOME EXTENT AND HAD INCLUDED CERTAIN CONCER NS AS FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND REJECTED TWO CONCERNS WHICH WERE SELECTED BY THE TPO. ONE CONCERN WHICH WAS DIRECTED BY THE DRP TO BE INCLUDED IN THE FINAL SET OF COMPARABLES WAS CAT TECHNOLOGIES LIMITED . THE REVENUE IS IN APPEAL AGAINST THE ORDER OF THE DRP. 5 . THE REVENUE HAS FILED STATEMENT OF FACTS AND HAS POINTED OUT THAT INCLUSION OF THE CONCERN , CAT TECHNOLOGIES LIMITED , HAS BEEN ACCEPTED BY THE TPO AND HENCE, NO APPEAL IS FILED ON THIS ISSUE. HOWEVER, OTHER ISSUES ARE RAISED AGAIN ST THE ORDER OR DRP . 6 . THE LD. DR FOR THE REVENUE HAD MOVED AN APPLICATION FOR ADJOURNMENT ; HOWEVER, THE LD. AR FOR THE ASSESSEE POINTED OUT THAT IN CASE THE COMPARABLES WHICH WERE FINALLY SELECTED BY THE TPO ARE INCLUDED AND ALSO CONCERN CAT TECHNOLO GIES LIMITED IS INCLUDED THEN THE MARGIN SHOWN BY THE ASSESSEE FALLS WITHIN THE ARMS LENGTH MARGIN OF +/ - 5% . 7 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. IN VIEW OF THE CONCESSION GIVEN BY THE LD. AR FOR THE ASSESSEE, WE PROCEED TO DE CIDE THE PRESENT APPEAL ON THE PRELIMINARY ISSUE ITSELF, WITHOUT GOING INTO MERITS OF ISSUES RAISED BY THE REVENUE AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE. THE TPO IN THE FINAL ANALYSIS HAD SELECTED NINE CONCERNS AS COMPARABLES AND THE MEAN MARGIN O F THE COMPARABLES WAS DETERMINED AT 25.47% AS AGAINST THE MARGIN OF THE ASSESSEE AT 17.94%. THE DRP HAS DIRECTED THE INCLUSION OF CAT TECHNOLOGIES LIMITED AND THE MEAN MARGINS OF THE COMPARABLES WORKED OUT TO I TA NO . 512/PUN/2016 A ND CO NO. 59/PUN/2018 4 22.78% AS AGAINST THE MARGIN OF THE ASSESSEE A T 17.94%. HENCE THE MARGIN SHOWN BY THE ASSESSEE FALLS WITHIN THE ARMS LENGTH MARGIN OF +/ - 5%. IN SUCH CIRCUMSTANCES, WE FIND MERIT IN THE PLEA OF THE ASSESSEE . T HE ISSUES RAISED BY THE DEPARTMENT ARE THUS ALLOWED AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE HELD TO BE ACADEMIC. THUS WE DO NOT PROCEED TO DECIDE THE SAME. IN VIEW THEREOF, THE APPEAL OF THE REVENUE IS ALLOWED AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE BECOME ACADEMIC . 8 . IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWED AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON THIS 25 TH DAY OF JANUARY , 201 9 . SD/ - SD/ - ( D.KARUNAKARA RAO ) ( SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 25 TH JANUARY, 2019 . BIDHAN /GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. THE C I T(A) , 4. THE PR. CIT - 5. , , / DR A, ITAT, PUNE; 6. / GUARD FILE . // TRUE COPY // / BY ORDER , / PRIVATE SECRETARY , / ITAT, PUNE