DCIT, Bangalore V. M/s Northern Operating Services Pvt. Ltd., Bangalore

ITA 112/BANG/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9404 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 05-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G R REDDY CIT I
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Transfer pricing
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER IT(TP)A NO.112/BANG/2015 ASSESSMENT YEAR : 2010-11 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 5(1)(2), BENGALURU. VS. M/S. NORTHERN OPERATING SERVICES PVT. LTD., 2 ND FLOOR, RMZ ECOSPACE, CAMPUS IC, SARJAPUR OUTER RING ROAD, BELLANDUR VILLAGE, VARTHUR HOBLI, BANGALORE 560 103. PAN: AACCN 1652J APPELLANT RESPONDENT IT(TP)A NO.210/BANG/2015 & CO NO.106/BANG/2015 ASSESSMENT YEAR : 2010- 11 M/S. NORTHERN OPERATING SERVICES PVT. LTD., BANGALORE 560 103. PAN: AACCN 1652J VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 5(1)(2), BENGALURU. APPELLANT / CROSS OBJECTOR RESPONDENT REVENUE BY : SHRI G.R. REDDY, CIT-I (DR) ASSESSEE BY : SHRI K.R. VASUDEVAN, ADVOCATE DATE OF HEARING : 07.09.2016 DATE OF PRONOUNCEMENT : 08.09.2016 IT(TP)A NOS.112 & 210/BANG/2015 &CO NO. 106/BANG/2015 PAGE 2 OF 6 O R D E R PER BENCH THE TWO APPEALS ARE CROSS APPEALS BY THE REVENUE AND THE ASSESSEE AGAINST THE ORDER PASSED BY THE AO U/S. 14 3(3) R.W.S. 144C OF THE INCOME-TAX ACT, 1961 ['THE ACT']. CROSS OBJECTION IS FILED BY THE ASSESSEE ARISING OUT OF THE REVENUES APPEAL. IT(TP)A 210/BANG/2015 2. DURING THE COURSE OF HEARING, THE LD. COUNSEL FO R THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS FILED MUTUAL AGREEM ENT APPLICATION (MAP) PURSUANT TO ARTICLE 25 OF INDO-US DOUBLE AVOIDANCE AGREEMENT WITH RESPECT TO THE TRANSFER PRICING ADJUSTMENTS FROM IT S ASSOCIATED ENTERPRISE (AE) IN US, WHICH IS THE SUBJECT MATTER OF THIS APP EAL FILED BY THE ASSESSEE. CONSEQUENTLY THE ASSESSEE HAS AGREED THE TERMS MUTU ALLY AGREED BETWEEN THE COMPETENT AUTHORITIES OF INDIA AND US A ND ACCORDINGLY THE JT. CIT(OSD), CIRCLE 5(1)(1) HAS PASSED THE ORDER DATED 02.06.2016 GIVING EFFECT TO THE MAP ORDER, WHICH IS FILED ON RECORD. IN VIEW OF THE ABOVE, THE LD. COUNSEL FOR THE ASSESSEE PRAYED FOR WITHDRAWAL OF APPEAL BEFORE THE TRIBUNAL. THE LD. DR DID NOT CONTROVERT THE SUBMIS SIONS OF THE ASSESSEE. IN THE ABOVE FACTS AND CIRCUMSTANCES, WE DISMISS TH E ASSESSEES APPEAL AS WITHDRAWN. IT(TP)A NOS.112 & 210/BANG/2015 &CO NO. 106/BANG/2015 PAGE 3 OF 6 IT(TP)A NO.112/BANG/2015 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE LEARNED DRP MEMBERS ERRED IN HOLDING THAT T HE SIZE AND TURNOVER OF THE COMPANY ARE DECIDING FACTORS FO R TREATING A COMPANY AS A COMPARABLE AND ACCORDINGLY ERRED IN EXCLUDING M/ S TATA ELXSI LIMITED, SASKEN COMMUNICATION TECHNOLOGIES LIMITED, PERSISTENT SYSTEMS LIMITED, Z YLOG SYSTEMS LIMITED, MINDTREE LIMITED, L & T INFOTECH A ND INFOSYS LIMITED AS COMPARABLES. 2. THE LEARNED DRP MEMBERS ERRED IN EXCLUDING UNCONTROLLED COMPARABLES HAVING TURNOVER MORE THAN RS.200 CRORES IN THE ABSENCE OF TURNOVER CRITERION PRESCRI BED IN RULE 10B OF INCOME TAX RULES AND ALSO THERE BEING N O CORRELATION BETWEEN TURNOVER AND PROFIT MARGIN. 3. THE LEARNED DRP MEMBERS ERRED IN HOLDING THAT EXPENDITURE ON THE QUALIFIED MANPOWER IS THE DEFINI NG OUTFLOW IN THE COSTS INCURRED BY SOFTWARE COMPANIES AND EXCLUD ING JEEVAN SCIENTIFIC LIMITED FROM THE IT ENABLED SECTOR. 4. WHETHER ON FACTS AND IN CIRCUMSTANCES OF THE CAS E, THE DRP WAS JUSTIFIED IN DIRECTING THE ASSESSING OFFICE R TO REDUCE THE EXPENDITURE OF RS.2,90,05,643/- ON LEASED LINE AND RS.1,77,03,288/- ON TRAVELLING EXPENSES, INCURRED IN FOREIGN CURRENCY, BOTH FROM THE EXPORT TURNOVER AND TOTAL T URNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 10A OF THE IT ACT WITHOUT APPRECIATING THE FACT THAT THE STATUTE ALLO WS EXCLUSION OF SUCH EXPENDITURE ONLY FROM THE ETO BY WAY OF SPECIF IC DEFINITION OF EXPORT TURNOVER AS ENVISAGED IN THE A CT. ON THE OTHER HAND, THERE IS NO SPECIFIC PROVISION IN SECTI ON 10A WARRANTING EXCLUSION OF ABOVE EXPENSES FROM THE TOTAL TURNOVER ALSO. 5. THESE AND ANY OTHER GROUNDS THAT MAY BE URGED A T THE TIME OF HEARING, THE HON'BLE ITAT IS PLEADED TO QUASH TH E DIRECTIONS OF DISPUTE RESOLUTION PANEL. IT(TP)A NOS.112 & 210/BANG/2015 &CO NO. 106/BANG/2015 PAGE 4 OF 6 4. GROUND NOS. 1 TO 3 PERTAINS TO TP ADJUSTMENTS AN D IN VIEW OF THE REVENUE HAVING PASSED THE ORDER DATED 02.06.2016 GI VING EFFECT TO THE MAP ORDER AS OBSERVED IN PARA 2 HEREINABOVE, THE GR OUNDS RAISED BY THE REVENUE IN THIS REGARD ARE INFRUCTUOUS AND AS SUCH, THESE GROUNDS ARE DISMISSED. 5. GROUND NO.4 IS ON THE ISSUE WHETHER THE DRP WAS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO REDUCE THE EXPEN DITURE OF RS.2,90,05,643 ON LEASED LINE AND RS.1,77,03,288 ON TRAVELLING EXP ENSES INCURRED IN FOREIGN CURRENCY, BOTH FROM THE EXPORT TURNOVER AND TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S. 10A OF THE ACT. THE ISSUE RAISED BY THE REVENUE IS SQUARELY COVERED BY THE JUDGMENT OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. TATA ELXSI LTD., 349 ITR 98 (KARN) WHEREIN IT HAS BEEN HELD THAT WHATEVER IS EXCLUDED FROM EXPORT TURNOVER SHOULD ALSO BE EXCLUDED FROM THE TOTAL TUR NOVER. IN VIEW OF THE AFORESAID DECISION OF THE HONBLE HIGH COURT OF KAR NATAKA, WE FIND NO INFIRMITY IN THE ORDER OF DRP ON THIS ISSUE. THUS, THIS GROUND IS DISMISSED. 6. GROUND NO.5 IS GENERAL IN NATURE AND CALLS FOR N O ADJUDICATION. 7. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. CO NO.106/BANG/2015 8. THE ASSESSEE IN ITS CROSS OBJECTION HAS RAISED T HE FOLLOWING GROUNDS:- IT(TP)A NOS.112 & 210/BANG/2015 &CO NO. 106/BANG/2015 PAGE 5 OF 6 1. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. ASSESSING OFFICER ('AO')/ LD. TRANSFER PRICING OFFI CER ('TPO') ERRED IN OBJECTING TO THE UPPER LIMIT FOR SALES TUR NOVER FILTER WITHOUT PROVIDING ANY EMPIRICAL ANALYSIS. IN DOING SO, THE LD. AO / LD. TPO ERRED IN NOT APPRECIATING THAT THE INFORM ATION TECHNOLOGY ENABLES SERVICES ('ITES') INDUSTRY IS CL EARLY DEMARCATED BASED ON SIZE. 2. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE DRP PANEL ERRED IN NOT ADJUDICATING THAT IN FOSYS BPO LIMITED IS FUNCTIONALLY DISSIMILAR TO THE RESPONDEN T. THE RESPONDENT CRAVES LEAVE TO ADD, ALTER, AMEND AN D/OR DELETE ANY OF THE GROUND MENTIONED ABOVE. 9. SINCE THE ISSUES RELATE TO TRANSFER PRICING MATT ER ON WHICH THE REVENUE HAVING PASSED THE ORDER DATED 02.06.2016 GI VING EFFECT TO THE MAP ORDER AS OBSERVED IN PARA 2 HEREINABOVE, THESE GROUNDS RAISED BY THE ASSESSEE ARE INFRUCTUOUS AND AS SUCH, THESE GROUNDS ARE DISMISSED. 10. IN THE RESULT, BOTH THE APPEALS AND THE CO ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 8 TH DAY OF SEPTEMBER, 2016. SD/- SD/- ( INTURI RAMA RAO ) (ASHA VIJAYARAGHAVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 8 TH SEPTEMBER, 2016. /D S/ IT(TP)A NOS.112 & 210/BANG/2015 &CO NO. 106/BANG/2015 PAGE 6 OF 6 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.