M/s UL India Pvt Ltd, Bangalore V. Deputy Commissioner of Income Tax Circle-7(1)(1), Bangalore

ITA 02/BANG/2018

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 1941 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 19-02-2021
• Assessment Year: 2013-2014
• Appeal Filed On: 01-01-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B K SINGH
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction; TDS; Set aside
• Section: 143(3); 13; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES B BENCH: BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K , JUDICIAL MEMBER IT ( TP ) A NO. 2 /BANG/2018 (ASSESSMENT YEAR: 20 13 - 14 ) M/S. UL INDIA PVT. LTD., KALYANI PLATINA, BLOCK1, 3 RD FLOOR, NO.24, EPIP ZONE, PHASE II, WHITEFIELD, BENGALURU - 560 066 .APPELLANT . PAN AAACU 2468F VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 7(1)(1), BENGALURU. RESPONDENT. ASSESSEE BY: SHRI K.R.VASUDEVAN, ADVOCATE. REVENUE BY: SHRI B.K. SINGH, CIT (D.R) DATE OF HEARING : 19.02. 20 2 1 . DATE OF PRONOUNCEMENT : 25 . 02. 20 2 1 . O R D E R PER SHRI CHANDRA POOJARI, A . M . : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ASSESSMENT ORDER DT.31.10.2017 PASSED UNDER SECTION 143(3) R.W.S. 144(13) OF THE INCOME TAX ACT, 1961 BY THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 7(1)(1), BANGALORE. 2 IT (TP) A NO. 2/BANG/2021 2. THE ASSESSEE H AS RAISED THE FOLLOWING GROUNDS OF APPEAL: TRANSFER PRICING ISSUES 3 IT (TP) A NO. 2/BANG/2021 3. THE CONSTRUCTIVE GROUND IN TRANSFER PRICING ISSUES ARE IN GROUND NOS.7, 8, 9 & 10 AND OTHER GROUNDS ON T.P. DOES NOT REQUIRE ADJUDICATION . AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OPINION THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL IN ASSESSEES OWN CASE IN IT(TP)A NO.291/BANG/2014 VIDE ORDER DT.20.09.2019 FOR THE A.Y. 2009 - 10 ; OBSERVED IN PARAS 14, 16 & 17 ARE AS UNDER : 14. WE HAVE HEARD THE RIV AL SUBMISSIONS. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LAW WITH REGARD TO TREATING FOREIGN EXCHANGE LOSS/GAIN AS PART OF OPERATING PROFIT/LOSS HAS BEEN WELL SETTLED IN SEVERAL DECISIONS AND IN THIS REGARD RELIED ON THE DECISION OF ITAT BANGAL ORE BENCH IN THE CASE OF SAP LABS INDIA (P) LTD. (SUPRA). HE SUBMITTED THAT THE TPO WHILE COMPUTING PROFIT LEVEL INDICATOR (PLI) OF THE ASSESSEE IN THE CERTIFICATION SERVICES SEGMENT, HAS INCLUDED CERTAIN ITEMS OF EXPENSES, WHEREAS THE ASSESSEE HAS EXCL UDED THOSE EXPENSES AS BEING EXTRA - ORDINARY IN NATURE AND NOT HAVING IMPACT ON THE OPERATING MARGIN OF THE ASSESSEE. THESE OBJECTIONS, HOWEVER, WERE NOT MET BY THE DRP, DESPITE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE DRP. THIRDLY, IT WAS SUBMITTED TH AT AS FAR AS BANGALORE BENCHES OF THE TRIBUNAL ARE CONCERNED, THE THRESHOLD LIMIT FOR APPLICATION OF RPT FILTER FOR EXCLUDING COMPARABLE COMPANIES, SHOULD BE 15% OF THE TOTAL REVENUE BEING WITH RELATED PARTIES AND IN THIS REGARD PLACED RELIANCE ON THE DECI SION RENDERED IN 24/7 CUSTOMER PVT. LTD. (ITA NO.227/BANG/2010), SONY INDIA PRIVATE LTD. REPORTED IN (2009) 315 ITR (80) 150 (DEL.) WHEREIN IT HAS BEEN HELD THAT COMPARABLES HAVING RPT OF UP TO 15% OF TOTAL REVENUES CAN BE CONSIDERED AS COMPARABLE COMPANY. FOURTHLY, IT WAS SUBMITTED THAT THE ADJUSTMENT AND ADDITION TO THE TOTAL INCOME SHOULD BE MADE U/S. 92 OF THE ACT ONLY IN 4 IT (TP) A NO. 2/BANG/2021 RESPECT OF INTERNATIONAL TRANSACTION AND NOT IN RESPECT OF TRANSACTIONS WITH NON - AE. IN THIS REGARD, THE LD. COUNSEL POINTED OUT THAT OUT OF THE TOTAL REVENUE FROM CERTIFICATION SERVICES OF RS.30.57 CRORES, ONLY 10.19 CRORES WAS TRANSACTIONS WITH AE AND THEREFORE THE ADJUSTMENT SHOULD BE REFLECTED ONLY TO THE TRANSACTIONS OF AE AND NOT THE ENTIRE TRANSACTION. LASTLY, IT WAS SUBMITT ED THAT FOREIGN EXCHANGE LOSS/GAIN TO THE EXTENT IT RELATES TO THE CAPITAL ACCOUNT, SHOULD NOT BE INCLUDED AS PART OF THE OPERATING PROFIT/LOSS. 15 16. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND ARE OF THE VIEW THAT THE ISSUE W ITH REGARD TO DETERMINATION OF ALP IN THE CERTIFICATION SERVICES SEGMENT SHOULD BE REMITTED BACK TO THE TPO. ACCORDINGLY, THE ISSUE IS RESTORED BACK TO THE TPO FOR FRESH CONSIDERATION WITH THE FOLLOWING DIRECTIONS: - (1) THE FOREIGN EXCHANGE LOSS/GAIN TO THE E XTENT IT RELATES O REVENUE ITEMS AND ARE DIRECTLY RELATED TO CERTIFICATION SERVICES RENDERED BY THE ASSESSEE SHOULD BE CONSIDERED AS PART OF THE OPERATING PROFIT OR LOSS, AS THE CASE MAY BE. THE LAW IN THIS REGARD IS WELL SETTLED BY THE DECISION RENDERED BY THE ITAT BANGALORE BENCH IN THE CASE OF SAP LABS (SUPRA) AND AUTO DESK INDIA PVT. LTD. VS. DCIT IT(TP)A.NO.540 & 541/BANG/2013. (2) THE TPO SHOULD RESTRICT THE ADDITION ONLY IN RESPECT OF INTERNATIONAL TRANSACTIONS WITH THE AE. HOWEVER, THE SUBMISSION MADE BY THE LD. DR WITH REGARD TO A PART OF THE CERTIFICATION SERVICES HAVING BEEN SUB - CONTRACTED TO THE AE AND RECEIPT OF SUB - CONTRACTING CHARGES FROM THE AE TO THE EXTENT THE SAME WILL HAVE IMPACT ON THE CONSIDERATION RECEIVED FROM THE AE FOR RENDERING THE C ERTIFICATION SERVICES SHOULD ALSO BE EXAMINED BY THE TPO. (3) ERRORS, IF ANY, IN THE COMPUTATION OF MARGINS OF COMPARABLES SHOULD BE LOOKED INTO BY THE TPO IN THE SET ASIDE PROCEEDINGS. (4) THRESHOLD LIMIT FOR APPLYING RPT FILTER SHOULD BE 15% OR 25% OF SALES DEPENDING UPON THE AVAILABILITY OF COMPARABLE COMPANIES AFTER ALL EXCLUSIONS AS HELD BY THE TRIBUNAL IN THE CASE OF AUTO DESK INDIA PVT. LTD. VS. DCIT [2018] 96 TAXMANN.COM 263 (BANG.TRIB.) [PARA 24 TO 25]. 17. THE ABOVE DIRECTIONS WILL BE SUFFICIENT TO TAKE CARE OF THE GRIEVANCES PROJECTED BY THE ASSESSEE IN GROUND NOS. 5 & 6 AND ADDITIONAL GROUNDS NO.6 (D), 26 & 27. THE TPO WILL AFFORD OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE DECIDING THE ISSUE. TAKING A CONSISTENT VIEW IN THIS ASSESSMENT YEAR ALSO, WE DEEM IT FIT TO REMIT THE ISSUE IN DISPUTE IN GROUND NOS.7, 8, 9 & 10 TO THE FILE OF A.O./TPO FOR FRESH CONSIDERATION. 5 IT (TP) A NO. 2/BANG/2021 4. THE NEXT GROUND WITH REGARD TO CORPORATE TAX AS IN A - 1 TO 6 AS FOLLOWS . 5. WE HAVE HEARD BOTH THE P ARTIES. THE ISSUE RELATING TO THE ACTION OF THE REVENUE AUTHORITIES IN NOT RECOGNIZING INCOME BY CHANGING THE METHOD OF ACCOUNTING FROM PROPORTIONATE COMPUTATION METHOD TO COMPLETE CONTRACT METHOD. 6. AFTER HEARING BOTH THE PARTIES, THIS ISSUE CAM E UP FOR CONSIDERATION BY THIS TRIBUNAL IN IT(TP)A NO.291/BANG/2014 VIDE ORDER DT.20.09.2019 FOR THE A.Y. 2009 - 10 IN PARA 36 AS UNDER : 6 IT (TP) A NO. 2/BANG/2021 36. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ARE OF THE VIEW THAT THE CONCLUSION OF THE DRP IN THIS REGARD DESERVES TO BE UPHELD. IT IS NO DOUBT TRUE THAT THE ASSESSEE IS AT LIBERTY TO CHANGE THE METHOD OF ACCOUNTING PROVIDED THE CHANGE IN THE METHOD OF ACCOUNTING IS BONAFIDE AND IS BEING CONSISTENTLY FOLLOWED SUBSEQUENTLY. BUT THE METHOD FOLLOWED BY THE ASSE SSEE IN THE PRESENT CASE OF POSTPONING REVENUE RECOGNITION WITHOUT POSTPONING THE COST INCURRED FOR EARNING THE REVENUE CANNOT BE SAID TO BE PROPER. THERE IS NO VALID EXPLANATION FOR CLAIMING EXPENSES RELATED TO THE CAS SERVICES RENDERED BY THE ASSESSEE W HEN RECOGNITION OF INCOME THEREFROM IS POSTPONED. THE CHANGE IN THE METHOD OF ACCOUNTING WAS THEREFORE NOT BONAFIDE AND WAS RIGHTLY REJECTED BY THE REVENUE AUTHORITIES. WE FIND NO MERIT IN THE CLAIM OF THE ASSESSEE IN THIS REGARD. THE CASES CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE ARE WITH REGARD TO THE RIGHT OF AN ASSESSEE TO CHANGE THE METHOD OF ACCOUNTING PROVIDED IT IS BONAFIDE AND IS FOLLOWED SUBSEQUENTLY. THEREFORE THE CASE LAWS CITED ARE NOT DISCUSSED. SUFFICE IT TO SAY THAT THE PRINCIPLE L AID DOWN IN THOSE CASES ARE NOT APPLICABLE TO THE PRESENT CASE IN VIEW OF THE FINDING THAT THE CHANGE IN THE METHOD OF ACCOUNTING WAS NOT BONAFIDE AND PROPER. GR.NO. 15 TO 18 ARE THEREFORE DISMISSED. AS FAR AS GR.NO.19 RAISED BY THE ASSESSEE WHICH IS TO TH E EFFECT THAT IF THE INCOME RECOGNITION WHICH IS POSTPONED IN THIS YEAR IS CONSIDERED AS REVENUE FOR THE CURRENT YEAR, THEN THE AO SHOULD ALLOW CONSEQUENTIAL BENEFIT IN THE SUBSEQUENT YEAR IN WHICH THE SAME INCOME HAS BEEN OFFERED TO TAX, WE ARE OF THE VIE W THAT THE ASSESSEE IS AT LIBERTY TO PURSUE REMEDIES AVAILABLE TO IT IN LAW AND THE AO SHALL CONSIDER THE SAME IN ACCORDANCE WITH LAW AND IN THE LIGHT OF THE FINDINGS AS ABOVE. 6.1 BY TAKING A CONSISTENT VIEW, THIS GROUND IS DECIDED AGAINST THE ASSES SEE. 7. THE NEXT GROUND IS WITH REGARD TO DENIAL OF TDS CREDIT : 7 IT (TP) A NO. 2/BANG/2021 WE DEEM IT APPROPRIATE TO DIRECT THE ASSESSING OFFICER TO GIVE CREDIT AS PER RE CONCILIATION STATEMENT SUBMITTED BY THE ASSESSEE AFTER DUE VERIFICATION. THIS GROUND IS REMITTED TO THE FILE OF ASSESSING OFFICER FOR CONSIDERATION AFRESH. 8. THE NEXT GROUND C : N ON - GRANT OF DEPRECIATION ON FOREIGN EXCHANGE LOSS DISALLOWED AS CAPITAL EXPENSES FOR THE ASSESSMENT YEAR 2009 - 10 RAISED BY THE ASSESSEE AS FOLLOWS : WE REMIT THIS ISSU E TO THE FILE OF ASSESSING OFFICER FOR VERIFICATION WITH RECORDS AND DECIDE ACCORDINGLY AS PER LAW. 9. THE NEXT GROUND D : THIS GROUND IS WITH REGARD TO LEVY OF INTEREST U/S.234B OF THE ACT, IS CONSEQUENTIAL IN NATURE. 10 . IN THE RESULT, THE ASSEESSS APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE. SD/ - SD/ - ( GEORGE GEORGE K ) ( CHANDRA POOJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 25 .02.2021 . *REDDY GP 8 IT (TP) A NO. 2/BANG/2021 COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT (A) 4. PR. CIT 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BANGALORE