DCIT, Circle 3(3), Hyderabad V. M/s Xilinx India Technology Services Pvt. Ltd., Hyderabad

ITA 1051/HYD/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6043 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 24-05-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 27-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R VIJAYARAGHAVAN
• Assessee Lawyers: U MINICHANDRAN
• Keywords: Sale consideration of property below Jantri Value; Opportunity of being heard; Additional evidence

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 1051/HYD/2014 ASSESSMENT YEAR: 2007-08 DY. COMMISSIONER OF INCOME- TAX, CIRCLE 3(3), HYDERABAD. VS. M/S XILINX INDIA TECHNOLOGY SERVICES PVT. LTD., HYDERABAD. PAN: AAACX0450C (APPELLANT) (RESPONDENT) ASSESSEE BY : SMT. U. MINICHANDRAN REVENUE BY : SHRI R. VIJAYARAGHAVAN DATE OF HEARING : 22-02-2017 DATE OF PRONOUNCEMENT : 24 -03-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS IS AN APPEAL OF THE REVENUE DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(A) - IV, HYD ERABAD, DATED 10/03/2014 FOR AY 2007-08 WHEREIN THE REVENUE HAS R AISED THE FOLLOWING GROUNDS OF APPEAL: (I) THE LEARNED CIT(A) ERRED IN DIRECTING THE AO T O REDUCE COMMUNICATION CHARGES, INSURANCE & PROFESSIONAL CHA RGES BOTH FROM THE EXPORT TURNOVER AS WELL AS TOTAL TURNOVER, THOUGH SUCH AN ADJUSTMENT TO THE TOTAL TURNOVER IS NOT CONTEMPL ATED IN THE PROVISIONS LAID DOWN BELOW SEC. 10A. (II) THE CIT(A) WHILE RELYING ON THE DECISION OF TH E HON'BLE ITAT IN THE CASE OF INTOTO SOFTWARE INDIA PVT LTD V ACIT (2013 35 TAXMAN 421 (HYD), ERRED IN ALLOWING THE COMPARABLE CASES BASED ON THAT DECISION. III) THE CIT(A) ERRED IN REJECTING THE COMPARABLES ADOPTED BY THE TPO WHICH WERE NOT AT ALL DISCUSSED BY THE ITAT IN ITS DECISION IN THE CASE OF INTOTO SOFTWARE INDIA P LTD VS ACIT( 2013 35 TAXMAN 421 (HYD). 2 ITA NO. 1051/H/14 M/S XILINX INDIA TECHNOLOGY SERVICES LTD. V) THE CIT(A) ERRED IN APPRECIATING THE FACT THAT I N THE CASE OF (I) E-ZES SOLUTIONS LTD (II) IGATE GLOBAL SOLUTIONS LTD (III) LGS GLOBAL LTD (IV) PERSISTENT SYSTEMS LTD (V) QUINTEQR A SOLUTIONS LTD (VI) RS SOFTWARE INDIA LTD (VII) THIRDWARE SOFT WARE SOLUTION LTD & (VIII) HELIOS & ATHESON INFORMATION, THE ASSE SSEE WITHOUT OFFERING OBJECTIONS BEFORE THE TPO, HAS CONTESTED T HE COMPARABLES ADOPTED BY THE TPO BEFORE THE CIT(A). 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS ENGAGED IN THE BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT SERV ICES. IT FILED ITS RETURN OF INCOME ON 31/10/2007 DECLARING A TOTAL IN COME OF RS. 26,06,670/- AFTER CLAIMING DEDUCTION U/S 10A OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). THE AO DISALLOWED THE CL AIM OF DEDUCTION U/S 10A AND ALSO MADE AN ADDITION U/S 92CA(4) OF RS. 1, 68,96,706/-. ACCORDINGLY, THE TOTAL INCOME WAS ASSESSED AT RS. 2 ,40,58,169/-. 3. AS REGARDS THE GROUND NO.1 RELATES TO THE DISALL OWANCE OF DEDUCTION U/S 10A OF RS. 45,54,792/-, THE AO HELD T HAT THE UNDERTAKING FOR WHICH THE ASSESSEE HAD CLAIMED DEDU CTION WAS NOT A NEW UNDERTAKING AND HAD BEEN FORMED BY TRANSFERRING EXISTING BUSINESS TO THE ASSESSEE. 4. DURING THE APPELLATE PROCEEDINGS, WHEN THE ISSUE WAS REFERRED TO THE AO BY THE CIT(A) FOR RE-EXAMINATION AND THE AO VIDE HER REPORT DATED 20/07/2012 SUBMITTED THAT THE ASSESSEE HAD BE EN ALLOWED 10A FOR AY 2008-09 IN VIEW OF THE ADDITIONAL EVIDENCE S UBMITTED BY THE ASSESSEE. THE CIT(A) HELD THAT THE ASSESSEES CLAIM WAS ACCEPTED IN THE SUBSEQUENT YEAR ON THE BASIS OF FURTHER EVIDENC E SUBMITTED BY THE ASSESSEE, THE CLAIM OF THE ASSESSEE IS ACCEPTED FOR THE YEAR UNDER CONSIDERATION. FURTHER, FOR COMPUTATION OF DEDUCTIO N U/S 10A OF THE ACT, THE CIT(A) RELIED ON THE SPECIAL BENCH DECISIO N IN THE CASE OF SAK SOFT LTD. 30 SOT 55 (CHENNAI) (SB) AS WELL AS I N THE CASE OF CIT VS. TATA ELXSI LTD., [2012] 349 ITR 98 (KAR.) WHERE IN IT WAS HELD THAT WHAT WAS EXCLUDED FROM EXPORT TURNOVER WAS TO BE EX CLUDED FROM THE TOTAL TURNOVER AS WELL. FOLLOWING THE SAID DECISIO NS, THE CIT(A) 3 ITA NO. 1051/H/14 M/S XILINX INDIA TECHNOLOGY SERVICES LTD. DIRECTED THE AO TO EXCLUDE THE RELEVANT EXPENSES ON FREIGHT, TELECOMMUNICATION CHARGES AND INSURANCE CHARGES FRO M EXPORT TURNOVER AS WELL AS TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 10A OF THE ACT. 5. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD. THE HONBLE COURTS AND THE COORDINATE BE NCHES OF ITAT HAVE CONSISTENTLY HELD THAT THE INTERNET CHARGES HA VE TO BE EXCLUDED BOTH FROM THE EXPORT TURNOVER AS WELL AS FROM THE T OTAL TURNOVER WHILE COMPUTING DEDUCTION U/S 10A OF THE ACT. THE HONBLE BOMBAY HIGH COURT IN CASE OF CIT VS. GEM PLUS JEWELLERY (330 IT R 175) AS WELL AS DIFFERENT BENCHES OF TRIBUNAL INCLUDING ITAT, CHENN AI BENCH (SB) IN THE CASE OF ITO VS. SAK SOFT (313 ITR (AT) 853) HAV E HELD THAT COMMUNICATION CHARGES ATTRIBUTABLE DIRECTLY TO THE EXPORT OF ARTICLE OR THING OUTSIDE INDIA HAS TO BE EXCLUDED BOTH FROM EXPORT TURNOVER AS WELL AS TOTAL TURNOVER WHILE COMPUTING EXEMPTION U /S 10A OF THE ACT. IN VIEW OF THE ABOVE, WE UPHOLD THE ORDER OF THE CI T(A) AND DISMISS THE GROUND RAISED BY THE REVENUE. 6. AS REGARDS GROUND NOS. 2 TO 4 WITH REGARD TO TP ADJUSTMENT AND SELECTION OF COMPARABLES, THE TPO ACCEPTED TWO OF T HE COMPARABLES, VIZ. MINDTREE CONSULTING LTD. AND SIT TECHNOLOGIES & EXPORTS LTD. ADOPTED BY THE TP DOCUMENTATION OF THE ASSESSEE, TH OUGH HE TOOK INTO ACCOUNT THE PROFIT MARGIN FOR THE FY 2006-07 O NLY AND NOT FOR MULTIPLE YEARS AS DONE BY THE ASSESSEE. 7. BEFORE THE CIT(A), THE ASSESSEE HAD OBJECTED TO THE DECISION OF THE AO IN MODIFYING THE PROFIT MARGIN ON THE CURREN T YEARS DATA ALONE. CIT(A) RELYING ON VARIOUS DECISIONS, HELD THAT IT I S ONLY THE CURRENT YEARS DATA THAT IS RELEVANT FOR DETERMINATION OF A LP UNLESS MATERIAL IS BROUGHT ON RECORD TO SHOW THAT THE DATA OF THE PREC EDING TWO YEARS HAS INFLUENCE ON THE DETERMINATION OF THE TRANSFER PRICE. NO SUCH 4 ITA NO. 1051/H/14 M/S XILINX INDIA TECHNOLOGY SERVICES LTD. MATERIAL HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE , HENCE, THE USE BY THE TPO OF CURRENT YEAR DATA ALONE IS THEREFORE UPHELD. 7.1 THE TPO HAD SELECTED THE FOLLOWING ADDITIONAL COMPARABLES: S.NO. COMPANY NAME OP/TC WITHOUT ADJUSTMENT 1. ACCEL TRANSMATIC LTD., (SEG.) 21.11% 2. AVANI CIMCON TECHNOLOGIES LTD., 52.59% 3. CELESTIAL LABS LTD. 58.35% 4. DATAMATICS LTD. 1.38% 5. E-ZEST SOLUTIONS LTD. 36.12% 6. FLEXTRONICS SOFTWARE SYSTEMS LTD. (SEG.) 25.31% 7. GEOMATRIC LTD. (SEG.) 10.71% 8. HELIOS & MATHESON INFORMATION 36.63% 9. IGATE GLOBAL SOLUTIONS LTD. 7.49% 10. INFOSYS TECHNOLOGIES LTD. 40.30% 11. ISHIR INFOTECH LTD. 30.12% 12. KALS INFORMATION SYSTEMS LTD. (SEG.) 30.55% 13. LGS GLOBAL LTD. 15.75% 14. LUCID SOFTWARE LTD. 19.37% 15. MEDIASOFT SOLUTIONS LTD. 3.66% 16. MEGASOFT SOLUTIONS LTD. 60.23% 17. PERSISTENT SYSTEMS LTD. 24.52% 18. QUINTEGRA SOLUTIONS LTD. 12.56% 19. RS SOFTWARE (INDIA) LTD. 13.47% 20. R SYSTEMS INTERNATIONAL LTD. (SEG.) 15.07% 21. SASKEN COMMUNICATION (SEG.) 22.16% 22. TATA ELXSI LTD. (SEG) 26.51% 23. THIRDWARE SOLUTIONS LTD. (SEG.) 25.12% 24. WIPRO LTD. (SEG.) 33.65% 7.2 IN THE COURSE OF APPELLATE PROCEEDINGS BEFORE T HE CIT(A), THE AR RELIED ON THE FOLLOWING DECISIONS AND SUBMITTED THAT THE SAME COMPARABLES WERE ADOPTED BY THE TPO IN THE FOLLOWIN G CASES AND THE SAME WERE REJECTED BY THE ITAT.: 1. INTOTO SOFTWARE INDIA PVT. LTD., VS. ACIT [2013] 35 TAXMAN.COM 421 (HYD.) 2. VIRTUSA INDIA PVT. LD. VS. DCIT [2013] 38 TAXMAN .COM 166 (HYD.) 3. DE SHAW INDIA SOFTWARE PVT. LTD. VS. ACIT (ITA N O. 2071/HYD/2011, DTD. 27/11/2013.) 4. MARKET TOOLS RESEARCH PVT. LTD. (ITA NO. 1150/HY D/2011, DATED 05/02/2014.) 5 ITA NO. 1051/H/14 M/S XILINX INDIA TECHNOLOGY SERVICES LTD. 7.3 THE CIT(A) OBSERVED THAT IN THE CASE OF INTOTO SOFTWARE INDIA PVT LTD, THE ASSESSEE WAS ENGAGED IN THE BUSINESS O F DEVELOPMENT OF SOFTWARE FOR ITS AE. THEREFORE, THE BUSINESS OF THE ASSESSEE IN THE ABOVE CASE IS SIMILAR TO THAT OF THE ASSESSEE IN TH E PRESENT CASE, THE DECISION OF THE ITAT ON THE SELECTION OF COMPARABLE S IS APPLICABLE FOR THE PRESENT APPEAL. THE ITAT IN ITS DECISION REJECT ED EACH OF THE 24 COMPANIES SELECTED BY THE TPO AS COMPARABLES. THE D ECISION OF THE ITAT IN THIS CASE WAS ALSO FOLLOWED IN THE OTHER TH REE DECISIONS CITED BY THE ASSESSEE. RESPECTFULLY FOLLOWING THE DECISIO NS OF THE ITAT, THE CIT(A) SET ASIDE THE SELECTION OF THE ADDITIONAL 24 COMPANIES BY THE TPO AS COMPARABLES AND DIRECTED THE ASSESSING OFF ICER TO ADOPT THE TWO COMPANIES, MINDTREE CONSULTING LTD AND S.I.P. T ECHNOLOGIES & EXPORTS LTD. AS THE COMPARABLES FOR THE PURPOSE OF THE TP ANALYSIS. 8. AGGRIEVED WITH THE ABOVE ORDER, THE REVENUE IS I N APPEAL BEFORE US. 9. THE LD. DR SUBMITTED THAT THE CIT(A) HAS RELIED ON THE DECISION IN THE CASE OF INTOTO SOFTWARE INDIA PVT. LTD., IN WHICH THE ITAT, HYDERABAD HAS NOT ADJUDICATED 8 COMPANIES, WHICH AR E GIVEN IN GROUND NO.5 OF GROUNDS OF APPEAL. THE ASSESSEE HAS NOT OFFERED ANY OBJECTION BEFORE THE TPO BUT HAS CONTESTED BEFORE C IT(A) FOR EXCLUSION OF THE ABOVE SAID 8 COMPANIES. SHE VEHEME NTLY ARGUED THAT THESE 8 COMPANIES SHOULD BE INCLUDED AS COMPARABLES . 10. THE LD. AR, ON THE OTHER HAND, OBJECTED TO INCL USION OF ONLY THE FOLLOWING FOUR COMPANIES: 1. E-ZEST SOLUTIONS LTD., 2. IGATE GLOBAL SOLUTIONS LTD., 3. PERSISTENT SYSTEMS LTD., AND 4. HELIOS & ATHESON IN FORMATION. 11. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. THE TPO HAS SELECTED 26 COMPANIES AS COM PARABLES, OUT 6 ITA NO. 1051/H/14 M/S XILINX INDIA TECHNOLOGY SERVICES LTD. OF WHICH, THE CIT(A) HAS REJECTED 24 COMPANIES AS C OMPARABLES AND RETAINED TWO COMPANIES AS COMPARABLES. THE REVENUE HAS OBJECTED FOR REJECTION OF 8 COMPANIES, OUT OF WHICH, ASSESSE ES CONTENTION IS THAT FOUR COMPANIES CANNOT BE INCLUDED AS COMPARA BLES. AS PER THE SUBMISSIONS OF THE AR OF THE ASSESSEE, THE ITAT, BA NGALORE BENCH IN THE CASE OF M/S SOCIETY GENERAL GLOBAL SOLUTION CEN TRE PVT. LTD., (ITA NO. 1188/BANG/2011 AY 2007-08) VIDE ITS ORDER DAT ED 22/04/2016, HELD THAT E-ZES SOLUTIONS LTD. CANNOT BE INCLUDED A S COMPARABLE AS IT IS FUNCTIONALLY DIFFERENT. SIMILARLY FOR OTHER COMP ANIES ALSO, SIMILAR DECISION WAS GIVEN BY THE ITAT, BANGALORE. WE FIND THAT THE CIT(A) HAS REJECTED THESE 8 COMPANIES AS COMPARABLES AND R EMOVED FROM THE LIST OF COMPANIES SELECTED BY THE TPO. AS THE R EVENUE IS OBJECTING TO EXCLUSION OF THESE 8 COMPANIES AS COMP ARABLES WHILE THE ASSESSEE IS INSISTING TO INCLUSION OF FOUR COMPANIE S AS COMPARABLES, WE REVERT THIS ISSUE BACK TO THE FILE OF THE TPO TO RE-DO THE ISSUE AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSEE MAY BE GIVEN OPPORTUNITY OF BEING HEARD IN THE MATTER. ACCORDINGLY, GROUND NOS. 2 TO 4 ARE ALLOWED FOR STATISTICAL PURPOSES. 12. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 24 TH MARCH, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAH MAN) JUDICIAL MEMBER ACC OUNTANT MEMBER HYDERABAD, DATED: 24 TH MARCH, 2017. KV 7 ITA NO. 1051/H/14 M/S XILINX INDIA TECHNOLOGY SERVICES LTD. COPY TO:- 1) DCIT, CIRCLE 3(3), 7 TH FLOOR, B BLOCK, IT TOWERS, AC GUARDS, HYD. 2) M/S XILINX INDIA TECHNOLOGY SERVICES PVT. LTD., UNIT NO. 4-1, 4 TH FLOOR, BLOCK 1, HITECH CITY, MADHAPUR, HYDERAB AD 500 081. 3) CIT(A) - IV, HYDERABAD 4 CIT - III, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE