POLYCOM TECHNOLOGY ( R & D) CENTER P.LTD, HYDERABAD V. ASST CIT CIR 1(2)(2), MUMBAI

ITA 1026/MUM/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3621 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 01-03-2016
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Keywords: Transfer pricing; Opportunity of being heard; Working capital adjustments; Initiation of penalty proceedings
• Section: 234B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL K , BENCH MUMBAI BEFORE SHRI D.KARUNAKARA RAO , A CCOUNTANT MEMBER & SHRI SANJAY GARG, J UDICIAL MEMBER ./ ITA NO. 1026 / MUM/20 1 6 ( / ASSE SSMENT YEAR : 20 11 - 2012 ) POLYCOM TECHNOLOGY (R&D) CENTRE PRIVATE LIMITED, 4 TH FLOOR, BLOCK - 1, DLF CYBER CITY, PLOT NO.129 - 132, APHB COLONY, GACHIWOLI, HYDERABAD - 500081 VS. ACIT, CIRCLE - 1(2)(2), MUMBAI ./ ./ PAN/GIR NO. : A A E CP 33 19 G ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI NIKHIL TIWARI /REVENUE BY : SHRI N.K.CHAND / DATE OF HEARING : 17 /0 5 / 201 6 / DATE OF PRONOUNCEMENT 17/05 /201 6 / O R D E R PER SANJAY GAR G , JUDICIAL MEMBER : THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAINST THE ASSESSMENT ORDER FRAMED BY THE AO U/S.143(3) R.W.S.144C(1) O F THE INCOME TAX ACT PURSUANT TO THE DIRECTIONS DATED 14 - 12 - 2015 OF THE DISPUTES RESOLUTION PANEL (DRP). 2. T HE ASSESSEE HAS TAKEN AS MANY AS 13 GROUNDS OF APPEAL. 3 . AT THE OUTSET, LD. AR HAS SUBMITTED THAT GROUNDS TAKEN IN THE PRESENT APPEAL ARE IDENTICAL AND SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN AS SESSEES OWN CASE FOR A.Y. 2009 - 2010 , PASSED IN ITA NO.1482/MUM/2014, VIDE ORDER DATED 10 - 11 - 2015 . LD. AR HAS FURTHER RELIED UPON A CHART EXPLAINING IN BRIEF RELATING TO THE EACH GROUND TAKEN BY THE ASSESSEE . 4. THE LD. AR HAS STATED THAT GROUND NOS.1 TO 3 ARE GENERAL IN NATURE AND DO NOT REQUIRE ANY ADJUDICATION. ITA NO.1026/16 2 5 . GROUND NO.4 IS NOT PRESSED BY LD. AR, THE SAME IS, THEREFORE, DISMISSED AS NOT PRESSED. 6 . GROUND NOS.5 TO 7 ARE RELATED TO TRANSFER PRICING ADJUSTMENT MADE BY THE TPO. THE CLAIM OF THE ASSESSEE IS THAT IT IS ENGAGED IN PROVIDING CONTRACT SOFTWARE DEVELOPMENT AND MARKETING SUPPORT SERVICES TO ITS ASSOCIATE ENTERPRISES. THE ASSESSEE SELECTED COMPARABLES HAVING THE SAME NATURE OF BUSINESS AS THAT OF THE ASSESSEE IN ITS TP STUDY REPORT. THE ASSESSEE HAD SHOWN ITS MARGIN @15.11%, WHEREAS AS PER TP STUDY REPORT, THE WEIGHTED AVERAGE COMPARABLE MARGIN CAME TO RS.12.64%. SINCE THE OPERATING MARGIN OF THE ASSESSEE WAS HIGHER THAN THE ARITHMETIC MEAN OF THE COMPARABLES , THE ASSESSEE CLAIMED THAT NO TRANSFE R PRICING ADJUSTMENT WAS REQUIRED. HOWEVER, DURING THE PROCEEDINGS BEFORE THE TPO, THE TPO AFTER GOING INTO THE ANNUAL FINANCIAL OF THE ASSESSEE AND READING THE NOMENCLATURE OF THE WORKS DONE BY THE ASSESSEE AND THE WORDING OF THE AGREEMENT WAS OF THE VI EW THAT THE ASSESSEE WAS ENGAGED INTO THE CONTRACT RESEARCH AND DEVELOPMENT SERVICES, INSTEAD OF CONTRACT SOFTWARE DEVELOPMENT SERVICES AS CLAIMED BY THE ASSESSEE. HE, THEREFORE, REJECTED THE COMPARABLES TAKEN BY THE ASSESSEE IN ITS TP STUDY REPORT AND ADO PTED THE COMPARABLE COMPANIES ENGAGED INTO RENDERING OF CONTRACT RESEARCH AND DEVELOPMENT OF SERVICES. 7 . BEING AGGRIEVED BY THE ABOVE ACTION OF AO, THE ASSESSEE CARRIED THE MATTER BEFORE THE DRP AND CONTENDED THAT THE TPO HAD NOT CORRECTLY APPRECIATED TH E BUSINESS ACTIVITY OF THE ASSESSEE AND THAT HE HA D WRONGLY REJECTED THE COMPARABLES TAKEN BY THE ASSESSEE AND ADOPTED HIS OWN COMPARABLES WHICH W ERE NOT APPLICABLE TO THE FACTS OF THE CASE. THE DRP AFTER CONSIDERING THE RELEVANT SUBMISSIONS, REJECTED THE CONTENTION OF ASSESSEE, HOWEVER, REJECTED ONE OF THE COMPARABLE OUT OF 4 COMPARABLES TAKEN BY THE TPO FOR CALCULATION OF THE AFORESAID COMPARABLE MARGIN AND ENHANCED THE ADJUSTMENT VALUE TO RS.3.62 CRORES AS AGAINST RS.2.10 CRORES MADE BY THE TPO. THE AO H AS GIVEN EFFECT TO THE SAID DIRECTIONS, A GGRIEVED BY WHICH THE ASSESSEE HAS COME IN APPEAL BEFORE US. ITA NO.1026/16 3 8 . WE HAVE HEARD THE CONTENTIONS OF THE RIVAL PARTIES AND PERUSED THE RECORD. WE FIND THAT IDENTICAL ISSUE HAS BEEN DEALT AND ADJUDICATED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEAR 2009 - 2010 IN ITA NO.1482/MUM/2011, VIDE ORDER DATED 10 - 11 - 2015. THE TRIBUNAL AFTER CONSIDERING THE RELEVANT SUBMISSIONS OF BOTH THE PARTIES, HAS RESTORED THIS ISSUE TO THE FILE OF TPO DIRECTING HIM TO RE - EXAMINE THE ENTIRE ISSUE BY WAY OF DE NOVO ASSESSMENT. THE RELEVANT OBSERVATIONS AND FINDINGS OF THE TRIBUNAL FOR THE SAKE OF CONVENIENCE ARE REPRODUCED AS UNDER : - 8. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED DURING THE COURSE O F THE TRANSFER PRICING PROCEEDINGS AND ALSO BEFORE THE DRP. THE LD. COUNSEL STRAIGHTAWAY DREW OUR ATTENTION TO THE COPIES OF SOFTEX FORM FILED BY THE ASSESSEE WITH THE STPI AUTHORITIES. IT IS THE SAY OF THE LD. COUNSEL THAT THIS EVIDENCE CLEARLY SHOW THAT THE SERVICES ARE MERELY IN THE NATURE OF SOFTWARE DEVELOPMENT SERVICES. IN SUPPORT OF HIS CONTENTION, THE LD. COUNSEL FILED A COMPLETE SET OF DOCUMENTS TO SUBSTANTIATE HIS CLAIM OF SOFTWARE DEVELOPMENT SERVICES PROVIDER. 9. PER CONTRA, THE LD. DEPARTMENT AL REPRESENTATIVE STRONGLY STATED THAT THE CLAIM OF THE SERVICE PROVIDED BY THE ASSESSEE IS ACTUALLY EMBEDDED IN THE SOFTWARE ITSELF. THE LD. DR STRONGLY RELIED UPON THE DECISION OF THE TRIBUNAL DELHI BENCH IN THE CASE OF ST MICROELECTRONICS (P) LTD VS CIT 145 TTJ 553. IT IS THE SAY OF THE LD. DR THAT WHERE PRODUCT PRODUCED BY THE ASSESSEE IN ITSELF IS OF A COMPLEX NATURE WHICH REQUIRED SKILL WORK FORCE. THE ASSESSEE WAS RIGHTLY TURNED A HIGH END PERFORMER IN FIELD OF COMPUTOR SOFTWARE AND THEREFORE THERE I S NO ERROR IN THE COMPARABLES SELECTED BY THE TPO. 10. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO CONSIDERED THE RELEVANT DOCUMENTARY EVIDENCES BROUGHT ON RECORD. IN OUR CONSIDERED OPINION, THE ENTIRE DISPUTE REVOLVES AROUND THE NATURE OF BUSINESS OF THE ASSESSEE. THE ASSESSEE CLAIMS ITSELF TO BE A SOFTWARE DEVELOPMENT SERVICE PROVIDER WHEREAS THE TPO HAS TREATED THE ASSESSEE AS ENGAGED IN PROVIDING CONTRAC T RESEARCH & DEVELOPMENT SERVICES. THIS DISPUTE GETS STRENGTH FROM THE NOMENCLATURE USED BY THE ASSESSEE IN FORM NO. 3CEB AND ALSO IN ITS TRANSFER PRICING STUDY REPORT. HOWEVER, THE DOCUMENTARY EVIDENCES FILED IN THE FORM OF COPIES OF SOFTEX FORMS AND THE ORDER OF THE STPI AUTHORITIES PAINT AN ALTOGETHER DIFFERENT PICTURE. IN OUR CONSIDERED OPINION, THESE DOCUMENTS HAVE NOT BEEN PROPERLY APPRECIATED BY THE REVENUE AUTHORITIES. HAD THESE DOCUMENTS BEEN EXAMINED QUA THE NATURE OF BUSINESS OF THE ASSESSEE, THE ITA NO.1026/16 4 RESULTANT PRODUCT WOULD HAVE BEEN DIFFERENT. THEREFORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE RESTORE THIS ISSUE TO THE FILE OF THE TPO. THE TPO IS DIRECTED TO RE - EXAMINE THE ENTIRE ISSUE BY DENOVO ASSESSMENT. THE TPO IS DIRECTED TO DECIDE THE ISSU E ON THE BASIS OF SOFTEX FORM FILED WITH THE STPI AUTHORITIES AND RELATED ORDERS OF THE STPI AUTHORITIES. THE ASSESSEE IS DIRECTED TO FURNISH NECESSARY DETAILS AND THE TPO IS DIRECTED TO EXAMINE THE SAME AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD T O THE ASSESSEE. NEEDLESS TO MENTION, THE TPO SHALL ALSO DECIDE ALL OTHER RELATED ISSUES WITH THE TP ADJUSTMENTS RELATING TO WORKING CAPITAL ADJUSTMENTS AND DIFFERENCES IN THE RISKS. GROUND NO. 4,5 & 6 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSE . SINCE THE ISSUE INVOLVED IN THE SUBSEQUENT YEAR IS IDENTICAL IN NATURE , BOTH LEARNED REPRESENTATIVES OF THE PARTIES HAVE SUBMITTED THAT THE ISSUE FOR THE YEAR UNDER CONSIDERATION BE RESTORED TO THE FILE OF TPO WITH SIMILAR DIRECTIONS AS ARE GIVEN FOR A.Y.2009 - 2 010. WE, ACCORDINGLY RESTORE THIS ISSUE TO THE FILE OF AO FOR DE NOVO ASSESSMENT IN TERMS OF THE DIRECTION GIVEN BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y.2009 - 2010 AS REPRODUCED ABOVE. 9 . GROUND NO. 8 & 9 ARE TAKEN TOGETHER WHICH RELATE TO THE TRANS FER PRICING ADJUSTMENTS. SINCE WE HAVE RESTORED THE DETERMINATION OR OTHERWISE OF TP ADJUSTMENT QUA GROUND NO S . 5 , 6 & 7 HEREINABOVE, THE ASSESSEE IS FREE TO RAISE ANY RELATED ISSUE BEFORE THE TPO AND THE TPO IS DIRECTED TO CONSIDER THE SAME AFTER GIVING R EASONABLE AND FAIR OPPORTUNITY TO THE ASSESSEE. GROUND NO S . 8 & 9 ARE TREATED TOGETHER ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 10 . GROUND NO.10 IS RELATING TO THE ACTION OF DRP IN ENHANCING THE INCOME OF THE ASSESSEE WITHOUT ISSUANCE OF ANY SHOW CA USE NOTICE. SINCE WE HAVE ALREADY RESTORED THE ISSUE FOR DE NOVO ASSESSMENT WHILE ADJUDICATING THE GROUND NOS. 5 , 6 & 7, THIS GROUND OF THE ASSESSEE HAS BECOME ACADEMIC IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION AT THIS STAGE. 11 . GROUND NOS. 11 & 12 A RE RELATING TO LEVY OF INTEREST U/S.234A, 234B & 234D AND RECOVERY OF INTEREST U/S.244A . THE ISSUES TAKEN IN THESE GROUNDS ARE CONSEQUENTIAL IN NATURE, WHICH DEPEND UPON THE FINDING OF ITA NO.1026/16 5 TPO IN RELATION TO GROUND NOS. 5 , 6 & 7, HENCE, DO NOT REQUIRE ANY AD JUDICATION AT THIS STAGE. 1 2 . GROUND NO.13 IS RELATING TO INITIATION OF PENALTY PROCEEDINGS U/S.271(1)(C) OF THE I.T.ACT. THIS GROUND IS ALSO CONSEQUENTIAL , RATHER PREMATURE AT THIS STAGE AND DOES NOT REQUIRE ANY ADJUDICATION . 1 3 . IN THE RESULT, APPEAL O F THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 17/05 / 201 6 . SD/ - ( D.KARUNAKARA RAO ) SD/ - ( SANJAY GARG ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED 17/05 /201 6 . . /PKM , . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//