ACIT Circle - 12(3), V. M/s Supervalue Services India Pvt. Ltd.,

ITA 111/BANG/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0226 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 01-02-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard

Judgement Text

IT(T)PA NO.111(B)/13 & CO NO.143(B)/15 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE B BENCH, BANGALORE BEFORE SHRI A.K.GARODIA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER IT(TP)A NO.111(BNG.)/2013 (ASSESSMENT YEAR : 2008-09) THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-12(3), RASHTROTHANA BHAVAN, OPP; RBI BANGALORE. APPELLANT VS M/S SUPERVALU SERVICES INDIA PVT.LTD., NOW KNOWN AS RETAIL FULL SERVER LTD.,) III FLOOR, PINE VALLY EMBASSY GOLF LINKS, BUSINESS PARK KORAMNGALA, INTERMEDIATE RING ROAD, BANGALORE-560 095 PAN NO.AAKCS4810P RESPONDENT AND C.O.NO.143(BANG)/2015 (ASSESSMENT YEAR: 2008-09) (BY ASSESSEE) ASSESSEE BY : SHRI CHAVALI NARAYAN, CA REVENUE BY : SMT. P. RENUKADEVI, JCIT DATE OF HEARING : 20-06-2016 DATE OF PRONOUNCEMENT : 30-06-2016 O R D E R PER SHRI A.K GARODIA, AM THIS APPEAL IS BY THE REVENUE AND THE C.O. IS BY TH E ASSESSEE WHICH ARE DIRECTED AGAINST THE ORDER OF THE CIT(A)-IV, BANGAL ORE DATED 30-11-2012 FOR THE ASSESSMENT YEAR : 2008-09. IT(T)PA NO.111(B)/13 & CO NO.143(B)/15 2. THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL ARE AS UNDER: 1. T HE ORDER OF THE LEARN E D CIT ( A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2 . ON T H E FAC TS AND IN TH E CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN HOLDING TH A T T H E S IZ E AND T U R N OVER OF T HE C OMPAN Y A RE D EC IDING FACTORS FOR TREATING A COMPANY A S A C OMPARABLE, A ND AC C ORDINGLY ERRE D IN EXCLUDING MIS FLEXTRONIC S LTD., MI S IGATE G L O B A L S O L UTIONS LT D . , MIS I NFOSYS TE C HNOLOGIES LTD. , MIS MINDTREE LTD . , MIS PE RS I STEN T SYSTEMS L T D ., MIS SASKEN COMMUNICATIONS TECHNOLOGIES LTD ., MI S TATA E LXSI LTD . A ND MIS WIPRO LTD . AS COMPARABLES. 3. ON T HE FACTS AND IN T HE CIRCUMSTANCES OF THE CASE THE LEARNED CIT ( A) HAS ER R ED IN R EJ E C T I NG TH E DIMIN I SH I NG RE V ENUE FILTE R USED B Y T HE TPO TO EXCLUDE COMPANIES T H AT DO N OT REF LECT T HE NORMA L I NDUSTR Y T REND . 4. O N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE TH E LEARNED CIT(A) FAI L ED TO AP PR E CIAT E T HAT THE D IFFERENT Y EAR END I NG FILTER APPLIED B Y THE TPO IS NECESS A RY TO E X C L U D E COMPANIES W H I C H DO NOT HAVE THE SAME OR COMPARABLE FINANCIAL CYCL E A S THE TEST ED PART Y . 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LEARNED CIT(A) HAS ER R ED IN DIRECTING THE TPO TO INCLUDE MIS MAARS SOFTWARE INTERNATIONAL LTD . IN THE FINAL SET OF C OMPARABLES WHICH WAS REJECTED BY THE TPO ON APPLICA TION OF EMPLOYEE COST FIL T ER. 6. ON THE FACTS AND I N THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A)HAS ERRED IN HOLDING THAT MIS BODHTREE CONSULTING LTD . BEING FUNCTIONALLY DIFFERENT, CANNOT BE T AKEN AS A COMPARABLE . 7. ON THE FACTS AND CIRCUMSTANCE OF THE CASE THE L D.CIT(A) IT(T)PA NO.111(B)/13 & CO NO.143(B)/15 HAS ERRED IN EXCLUDING M/S CELESTIAL BIOLABS LTD., FROM THE FINAL SET OF COMPARABLES. 8. ON THE FACTS AND CIRCUMSTANCES OF THE CASED THE LD. CIT(A) HAS ERRED IN HOLDING THAT M/S LUCID SOFTWAR E LTD., BEING FUNCTIONALLY DIFFERENT CANNOT BE TAKEN AS A C OMPARABLES. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE LD. CIT(A) HAS ERRED IN INCLUDING M/S VMF SOFT TECH LTD ., IN THE FINAL SET OF COMPARABLES WITHOUT APPRECIATING THE F ACT THAT THIS COMPANY IS UNDER PERSISTENT LOSS AND HENCE CANNOT B E TAKEN AS A COMPARABLE. 10. ON THE FACTS AND CIRCUMSTANCES OF THE CASE LD. CIT(A) ERRED IN DIRECTING THE AO TO REDUCE AN AMOUNT OF RS.1,10,13,881/- TOWARDS TELECOMMUNICATION CHARGES OF RS.14,10,201/- TOWARDS INSURANCE EXPENSES OF RS.6.5 75/- TOWARDS FREIGHT EXPENSES INCURRED IN FOREIGN CURREN CY BOTH FROM THE EXPORT TURNOVER AS WELL AS TOTAL TURNOVER FOR COMPUTATION OF DEDUCTION U/S 10A OF THE ACT WHEREAS SUCH EXCLUSION IS PERMITTED TO ARRIVE AT THE EXPORT TURN OVER ONLY AS PER THE DEFINITION GIVEN IN SECTION 10A OF THE IT A CT AND TOTAL TURNOVER HAS NOT BEEN DEFINED IN SEC.10A OF THE ACT . 11. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF MS/S TATA ELXSI LTD., ON THE ISSUE OF COMPUTING DEDUCTIO N U/S 10A BY EXCLUDING THE ABOVE EXPENSES FROM THE EXPORT TUR NOVER AND THE TOTAL TURNOVER AS WELL, HAS NOT REACHED FINALIT Y I VIEW OF THE ENDING DEPARTMENTS SLP BEFORE THE HONBLE SUPREME COURT. 12. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT(A) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVER SED AND THAT OF THE AO MAY BE RESTORED. 13. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEN D AND/OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. IT(T)PA NO.111(B)/13 & CO NO.143(B)/15 3. SIMILARLY, THE GROUNDS RAISED BY THE ASSESSEE A RE AS UNDER; ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW : 1. THE LEARNED CIT(A ) E R RED , I N L AW AND ON FACTS , I N UPHO L D IN G T HE AC TI ON O F THE L EARNED ASSESSING OFFICER CAO ' )/ TRANSFER PRICING OFFICER ( U TPO ') , BY NO T ACCEP TI NG TH E ECONOM I C ANALYSIS UNDERTAKEN BY THE RESPONDENT IN ACCORDANCE WITH THE PROV I SIONS OF THE ACT READ W I TH THE INCOME TAX RULES , 1962 AND I N CONDUCTING A FRESH ECONOMIC ANALYS I S FOR THE DETERM I NAT I ON OF THE ARM ' S LENGTH PR I CE I N CONNECT I ON W I TH T H E I MPUGNED I NTERNATIONA L TRANSACT I ON AND HOLD I NG THA T THE RESPONDENT ' S I NTERNAT I ONA L TRANSAC TI ON I S N OT AT A R M ' S L ENGTH. 2. THE L EARNED CIT(A) ERRED , IN LAW AND ON FACTS , IN UPHOLD I NG THE ACT I ON OF AOITPO I N DE T E R M I N I NG THE ARM ' S LENGTH MARG I N / PRICE US I NG DATA ONLY FOR F I NANCIAL YEAR 2007 - 08 WHICH WAS NOT AVA I LABLE TO THE RESPONDENT A T THE T I ME OF COMPLY I NG WITH THE TRANSFE R PRIC I NG DOCUMENTATION REQUIREMENTS . 3. THE LEARNED CIT(A) ERRED , IN LAW AND ON FACTS , BY UPHO L DING THE ACTION OF AOITPO I N H I S EXERC I SE OF POWERS U/S 133(6 ) OF THE AC T TO OBTA I N I NFORMAT I ON AND RELY I NG ON THE SAME FO R COMPARAB I LITY ANALYSIS . 4. THE LEARNED CIT(A) HAS ERRED , I N LAW AND ON FACTS , BY UPHOLDING THE ACTION OF AOITPO IN RE J ECT I NG COMPARABLE COMPANIES HAV I NG ONS I TE REVENUE GREATER THAN 75 % OF THE EXPORT R EVENUE AS A COMPARABIL I TY CRITERION . 5. THE LEARNED CIT(A) HAS ERRED , IN LAW AND ON FACTS , BY UPHOLD I NG THE AC T ION OF AOITPO IN ACCEPTING/REJECTING CERTAIN COMPARABLE COMPANIES BASED ON UNREASONABLE COMPARAB ILITY CRITERIA. 6. THE LEARNED TPO FAILED TO APPRECIATE THE FACT TH AT THE FOLLOW I NG COMPAN I ES ARE NOT FUNCTIONALLY COMPARABLE TO THE RESPONDENT AND THEREFORE ERRED I N L AW AND FACTS I N CONSIDERING IT(T)PA NO.111(B)/13 & CO NO.143(B)/15 THEM AS COMPARABLE COMPANIES ; A) AVAN I C I MCON TECHNOLOGIES L I M I TED B) E - ZEST SOLUT I ONS LIM I TED C) PERSISTENT SYSTEMS L I MITED D) QUINTEGRA SOLUTIONS LIMITED 7. THE L EARNED CIT ( A ) HAS ERRED , I N L AW AND ON FACTS , BY NOT AD J UD I CAT I NG THE GROUND REGARD I NG T HE TREATMENT OF FORE I GN EXCHANGE GAIN/ L OSS I N COMPU TIN G THE OPERAT I NG MA R G I NS OF THE RESPONDENT AS WELL AS THE COMPARAB L E COMPAN I ES ; 8. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS , IN NOT MAKING SUITABLE ADJUSTMENTS TO REFLECT THE DIFFERENCES IN THE RISK PROFILE OF THE RESPONDENT VIS--VIS THE COMPARABLES. 9. THE LD. CIT(A) GAS ERRED IN LAW AND ON FACTS, IN NOT ADJUDICATING THE GROUND THAT THE RESPONDENT IS AVAI LING TAX HOLIDAY UNDER SECTION 10A OF THE ACT AND THEREFORE, THERE IS NO MOTIVE/REASON TO SHIFT THE PROFITS OUT OF INDIA WH ICH IS ONE OF THE PRE-REQUISITE OF INVOKING THE TRANSFER PRICING PROVISIONS. THE RESPONDENT SUBMITS THAT EACH OF THE ABOVE GROUNDS IS INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. THE RESPONDENT CRAVES LEAVE TO ADD, ALTER,VARY ,OMIT, AMEND OR DELETE ONE OR MORE OF THE ABOVE GROUNDS OF CROSS OBJECTIONS AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE AP PEAL, SO AS TO ENABLE THE APPELLATE TRIBUNAL TO DECIDE THIS ACCORD ING TO LAW. 4. AT THE VERY OUTSET, IT WAS SUBMITTED BY THE LD.AR O F THE ASSESSEE THAT AS PER THE IMPUGNED ORDER, THE LD. CIT(A) HAS MAINLY DECIDED THE ISSUE ABOUT TP ADJUSTMENT ON THE BASIS OF TURNOVER FILTER AND IN MANY OF THE CASES, THE OBJECTION OF THE ASSESSEE REGARDING THE FUNCTIONAL DISSIMILARITY WAS NOT DECIDED BY HIM. AT THIS JUNC TURE, IT WAS OBSERVED BY THE BENCH THAT UNDER THESE FACTS, IT WILL BE FIT AN D PROPER THAT THE ENTIRE MATTER IS RESTORED BACK TO THE FILE OF THE LD. CIT( A) FOR FRESH DECISION ON ALL ASPECTS IN RESPECT OF ALL COMPARABLES. IN REPLY , BOTH SIDES AGREED TO IT(T)PA NO.111(B)/13 & CO NO.143(B)/15 THIS PROPOSITION AND THEREFORE, WE SET ASIDE THE OR DER OF THE LD. CIT(A) AND RESTORE THE ENTIRE MATTER BACK TO HIS FILE FOR A FR ESH DECISION WITH A DIRECTION THAT IN RESPECT OF ALL COMPARABLES, LD. C VIT(A) SHOULD DECIDE ALL ASPECTS OF THE MATTER INCLUDING ALL FILTERS AND FUN CTIONAL DISSIMILARITIES ETC., FOR WHICH OBJECTION IS BEING RAISED BY THE AS SESSEE BEFORE HIM AND HE SHOULD PASS NECESSARY ORDER AS PER LAW AND AS PER T HE ABOVE DISCUSSION, AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO BOTH SIDES. NEEDLESS TO SAY THAT HIS ORDER SHOULD BE A SPEAKING AND REASONED ORDER. 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE AS WELL AS THE CROSS OBJECTION BY THE ASSESSEE ARE ALLOWED FOR STATISTIC AL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (VIJAYPAL RAO ) (A .K.GARODIA) JUDICIAL MEMER ACCOUNTANT MEMBER BANGALORE: D A T E D : 30-06-2016 AM COPY TO : 1 APPELLANT 2 RESPONDENT 3. CIT(A), BANGALORE 4. CIT, BANGALORE 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER AR, ITAT, BANGALORE IT(T)PA NO.111(B)/13 & CO NO.143(B)/15