M/s IHS Parts Management Private Limited, Bangalore V. DCIT, Bangalore

ITA 1171/BANG/2011

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7172 (ITAT-BANGALORE)
• Duration Of Justice: 7 year(s) 1 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 28-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: UMASHANKAR GAUTAM
• Keywords: Transfer pricing; International transaction

Judgement Text

IT(TP)A.1171/BANG/2011 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'A', BENGALURU BEFORE SHRI. A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI. LALIET KUMAR, JUDICIAL MEMBER I.T(TP).A NO.1171/BANG/2011 (ASSESSMENT YEAR : 2007-08) M/S. IHS GLOBAL P. LTD, (FORMERLY IHS PARTS MANAGEMENT P. LTD) TOWER -01, MOBIUS BLOCK, 3 RD FLOOR, SJR I PARK, OPP SATHYA SAI HOSPITAL, WHITEFIELD, EPIP AREA, BENGALURU 560 066 .. APPELLANT PAN : AABCI4372D V. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 11(4), BENGALURU .. RESPONDENT ASSESSEE BY : SHRI. UMA SHANKAR GAUTAM, ADVOCATE REVENUE BY : SHRI. C. H. SUNDAR RAO, CIT DR-I HEARD ON : 16.01.2019 PRONOUNCED ON : 18.01.2019 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER U/S.143(3) R.W.S. 144C OF THE IT ACT, OF THE DCIT, CIRCLE -11(4), BENGALURU, DATED.30.09.2011, FOR THE ASSESSMENT YEA R 2007-08, IN PURSUANCE TO THE DIRECTIONS OF THE DRP, DT.26.09.20 11. IT(TP)A.1171/BANG/2011 PAGE - 2 02. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: IT(TP)A.1171/BANG/2011 PAGE - 3 03. IHS PARTS MANAGEMENT P. LTD WAS INCORPORATED ON OCTOBER 3, 2005, UNDER THE COMPANIES ACT. 1956. IHS INDIA IS ENGAGED IN PROVIDING DATA SOURCING SERVICE S AND BUILDING UP DATABASES FOR IHS, US. ITS ACTIVITIES ARE PREDOMINANTLY RELATED TO THE ENGINEERING AND TECHNI CAL SPHERES. THE ACTIVITIES CARRIED OUT BY IHS INDIA AR E HIGHLY TECHNOLOGY DRIVEN. IHS US IS A GLOBAL PROVIDER OF CRITICAL TECHNICAL INFORMATION, DECISION SUPPORT TOOLS AND R ELATED INFORMATION BASED SERVICES TO CUSTOMERS IN THE ENER GY, DEFENCE, AEROSPACE. CONSTRUCTION, ELECTRONICS AND AUTOMOTIVE INDUSTRIES. THE INFORMATION TOOLS OFFERE D BY IHS US PROVIDES ITS USERS QUICK ACCESS TO A WIDE DATABASE THAT PROVIDES TIMELY AND RELEVANT INFORMATION AND KNOWLEDGE-BASED APPLICATION TOOLS. IHS-US MAINTAINS THE MOST COMPREHENSIVE DATABASES AND EMPLO Y S PROPRIETARY PROCESSES AND TECHNOLOGY TO COLLECT, MANAGE AND DELIVER A VAST IN VENTORY OF INFORMATION. OWNERSHIP STRUCTURE OF JHS PARTS AS ON 31 ST MARCH, 2007 IS AS FOLLOWS : IHS PARTS MANAGEMENT INC., USA - 99.99% AND IHS PARTS MANAGEMENT. INDIA PVT.LTD. - 00.0 1% 04. INTERNATIONAL TRANSACTIONS (AS MENTIONED IN THE 92 CE REPORT) THE ASSESSEE ENTERED INTO THE FOLLOWING INTERNATIONAL TRANSACTIONS DURING THE FY 2006-07 IN ITS IT ENABLE D SERVICES SEGMENT. IT(TP)A.1171/BANG/2011 PAGE - 4 ITES SUPPORT CHARGES RECEIVED .. RS.16,38,43,183/- CROSS CHARGES BY HOLDING COMPANY FOR EMPLOYEE STOCK EXCHANGE .. RS. 83,11,050/- 05. THE TPO AFTER ISSUING THE SHOW CAUSE NOTICE AND AFTER CONSIDERING THE OBJECTION OF THE ASSESSEE, COMPARE D THE PRICE CHARGED BY THE ASSESSEE FROM ITS AE WITH THE INDEPE NDENT COMPARABLES AND THEREAFTER HAD MADE A RECOMMENDATIO N FOR ADJUSTMENT U/S.92CA OF RS.14,08,76,642/-. 06. THE TPO HAS TREATED 28 COMPARABLES AS UNDER, AS GOOD COMPARABLES AFTER ANALYSING THE DATA BASE, ANNUAL R EPORTS AND OBJECTION RAISED BY THE ASSESSEE : 1. ACCENTIA TECHNOLOGIES LTD (SEG) 2. ADITYA BIRLA MINACS WORLDWIDE LTD 3. ALLSEC TECHNOLOGIES LTD 4. APEX KNOWLEDGE SOLUTIONS P. LTD 5. APPOLLO HEALTHSTREET LTD 6. ASIT C. MEHTA FINANCIAL SERVICES LTD 7. BODHTREE CONSULTING LTD (SEG) 8. CALIBER POINT BUSINESS SOLUTIONS LTD 9. COSMIC GLOBAL LTD IT(TP)A.1171/BANG/2011 PAGE - 5 10. DATAMATICS FINANCIAL SERVICES LTD (SEG) 11. ECLERX SERVICES LTD 12. FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG) 13. GENESYS INTERNATIONAL CORPORATION LTD 14. HCL COMMET SYSTEMS & SERVICES LTD (SEG) 15. I C R A TECHNO ANALYTICS LTD (SEG) 16. INFORMED TECHNOLOGIES INDIA LTD 17. INFOSYS BPO LTD 18, ISERVICES INDIA P. LTD 19. MAPLE ESOLUTIONS LTD 20. MOLD TEK TECHNOLOGIES LTD (SEG) 21. R SYSTEMS INTERNATIONAL LTD (SEG) 22. SPANCO LTD (SEG) 23. TRITON CORP LTD 24. VISHAL INFORMATION TECHNOLOGIES LTD 25. WIPRO LTD (SEG) 26. NITTANY OUTSOURCING SERVICES P. LTD 27. ACCURATE DATA CONVERTERS LTD 28. APEX ADVANCED TECHNOLOGY P. LTD FEELING AGGRIEVED BY THE ORDER OF THE TPO, ASSESSEE FILED OBJECTIONS BEFORE THE DRP. 07. THE DRP PASSED AN ORDER ON 26.09.2011, GIVING P ART RELIEF TO THE ASSESSEE, AGAINST WHICH THE ASSESSEE IS IN APPE AL BEFORE US. 08. AT THE OUTSET, THE LD. AR SUBMITTED THAT THE AS SESSEE HAD FILED THE REVISED GROUNDS BEFORE THE TRIBUNAL AND EVEN AS PER THE REVISED GROUNDS; THE ASSESSEE IS NOT PRESSING GROUND NOS.7 AND 10. HENCE WE ARE LEFT WITH EFFECTIVE GROUND NOS.1 TO 6, 8 AND 9. GROUND 11 IS ONLY CONSEQUENTIAL AND NEEDS NO ADJUDICATION. 09. AS PER THE GROUNDS THE ASSESSEE HAS SOUGHT EXCL USION OF THE FOLLOWING COMPARABLES : IT(TP)A.1171/BANG/2011 PAGE - 6 1. ACCENTIA TECHNOLOGIES LTD, 2. BODHTREE CONSULTING LTD, 3. ECLERX SERVICES LTD 4. HCL COMNET SYSTEMS & SERVICES LTD 5. INFORMED TECHNOLOGIES INDIA LTD, 6. INFOSYS BPO LTD 7. MOLD-TEK TECHNOLOGIES LTD 8. WIPRO LTD NOW, WE SHALL DEAL WITH EACH OF THE COMPARABLE, IN THE FOLLOWING PARAGRAPHS. 10. THE LD. AR HAS SUBMITTED THAT ACCENTIA TECHNOLO GIES LTD, (MEDICAL TRANSCRIPTION SEGMENT), BODHTREE CONSULTIN G LTD (DATA CLEANSING SERVICE SEGMENT), ECLERX SERVICES LTD, HC L COMNET SYSTEMS & SERVICES LTD, INFORMED TECHNOLOGIES, INFO SYS BPO LTD, MOLD-TEK TECHNOLOGIES LTD AND WIPRO LTD (BPO SERVIC E SEGMENT) WERE CONSIDERED BY THE TRIBUNAL IN THE MATTER OF AO L ONLINE INDIA P. LTD V. DCIT [ITA.1036/BANG/2011 AND ALSO IN THE MATTER OF MAGMA DESIGN AUTOMATION INDIA P. LTD V. ACIT [ITA.1214/BANG/2011] AND AFTER CONSIDERING THE FUNC TIONAL PROFILE, EXTRAORDINARY EVENTS ETC., THE TRIBUNAL HAD EXCLUDE D THESE COMPANIES FROM THE LIST OF COMPARABLES. 11. PER CONTRA THE LD. DR HAD SUBMITTED THAT THOUGH THE TRIBUNAL HAD PASSED THE ORDER OF EXCLUSION OF THESE COMPANIE S, HOWEVER IN THE MATTER OF TESCO HINDUSTAN SERVICE CENTRE P. LTD V. DCIT [ITA.1285/BANG/2011], TRIBUNAL IN RESPECT TO BODHTR EE CONSULTING IT(TP)A.1171/BANG/2011 PAGE - 7 LTD AS WELL AS INFORMED TECHNOLOGIES LTD, HAD REMA NDED THE MATTER BACK TO THE FILE OF THE AO / TPO TO RE-EXAMI NE THESE COMPARABLES. FOR THIS PURPOSE OUR ATTENTION WAS DR AWN TO PARA 36 AND 46 OF THE ORDER OF TRIBUNAL IN TESCO HINDUSTAN SERVICE CENTRE P. LTD (SUPRA). 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD AND THE DECISIONS CITED BEFORE US. WITH RESPECT TO THE OTHER SIX COMPANIES, NAMELY, (I) ACCENTIA TECHNOLOGIES LTD, ( MEDICAL TRANSCRIPTION SEGMENT), (II) ECLERX SERVICES LTD, (III) HCL COMNET SYSTEMS & SERVICES LTD, (IV) MOLD-TEK TECHNOLOGIES LTD, (V) INFOSYS BPO LTD AND (VI) WIPRO LTD (BPO SERV ICE SEGMENT), SINCE THE TRIBUNAL HAS ALREADY EXAMINED THE COMPARA BILITY OF THESE COMPANIES UNDER SIMILAR SET OF FACTS, AND THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THE FACTS AND FUNCTION IN THE C ASE OF MAGMA DESIGN AUTOMATION INDIA P. LTD (SUPRA), WE FIND NO REASON TO TAKE A CONTRARY VIEW. ACCORDINGLY, FOLLOWING THE ORDERS O F THE TRIBUNAL IN AOL ONLINE INDIA P. LTD V. DCIT [SUPRA] AND MAGMA D ESIGN AUTOMATION INDIA P. LTD [SUPRA], WE DIRECT THE TPO TO EXCLUDE THESE SIX COMPANIES FROM THE LIST OF COMPARABLES. 13. WITH RESPECT TO BODHTREE CONSULTING LTD WE HAVE CONSIDERED THE OBJECTION RAISED BY THE REVENUE FOR SENDING THI S COMPANY BACK TO THE TPO. WE FIND THAT WITH RESPECT TO BODHTREE CONSULTING, THE TRIBUNAL IN THE CASE OF TESCO HAD MENTIONED THAT S EGMENTAL DATA ARE NOT AVAILABLE AND THEREFORE THE MATTER HAS BEEN REFERRED BACK TO THE FILE OF TPO. HOWEVER THE TRIBUNAL IN THE MATTE R OF POLE TO WIN IT(TP)A.1171/BANG/2011 PAGE - 8 INDIA P LTD V. DCIT [IT(TP)A.1053/BANG/2011, DT.08. 06.2016] FOR A. Y. 2007-08, HAS HELD AS UNDER : 8. BODHTREE CONSULTANCY LTD. 8.1 THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSES SEE SUBMITTED THAT THIS COMPANY IS ENGAGED IN THE BUSIN ESS OF DEVELOPMENT OF SOFTWARE PRODUCT AND HIGHLY FLUCTUAT ING MARGIN, THIS COMPANY IS ALSO FUNCTIONALLY DIS-SIMILAR TO THE ASS ESSEE AS IT IS ENGAGED IN PROVIDING OPEN AND END-TO-END WEB SOLUTI ON, SOFTWARE CONSULTANCY, DESIGN AND DEVELOPMENT OF SOLUTION BY USING LATEST TECHNOLOGY. THIS COMPANY IS ALSO ENGAGED IN THE DEV ELOPMENT OF SOFTWARE PRODUCTS. HE HAS REFERRED TO THE ANNEXURE TO THE DIRECTORS REPORT AND SUBMITTED THAT THIS COMPANY IS FOLLOWING THE METHOD OF REVENUE RECOGNITION FROM SOFTWARE DEVELOPMENT BASED ON SOFTWARE DEVELOPED AND BILLED TO CLIENT WHEREAS THE EXPENDIT URE IS RECOGNIZED WHEN IT IS INCURRED TOWARDS SOFTWARE DEV ELOPMENT. THEREFORE, THERE IS NO MATCH BETWEEN THE EXPENDITUR E AND THE REVENUE FROM SOFTWARE DEVELOPMENT SEGMENT. THUS ONC E THIS COMPANY IS IN THE SOFTWARE DEVELOPMENT, THE SAME CA NNOT BE COMPARED WITH THE ASSESSEE BEING ITES PROVIDED TO I TS AES. 8.2 ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRES ENTATIVE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE CO-ORDINATE BENCH OF THIS TRIBUN AL IN THE CASE OF ARIBA TECHNOLOGIES INDIA (P.) LTD. (SUPRA) FOUND THIS COMPANY TO BE COMPARABLE. 8.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE R ELEVANT MATERIAL ON RECORD. IN CASE OF ARIBA TECHNOLOGIES INDIA (P.) LTD. (SUPRA), THE OBJECTION S AGAINST THIS COMPANY WAS ON THE GROUND OF EXTRA-ORDINARY PROFIT AND THEREFORE THE TRIBUNAL HAS NO OCCASION TO EXAMINE THE FUNCTIO NAL COMPARABILITY OF THIS COMPANY EXCEPT THE GROUND RAI SED BY THE ASSESSEE REGARDING EXTRA-ORDINARY PROFIT MARGIN. TH E LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS REFER RED TO THE ANNEXURE TO THE DIRECTORS REPORT WHEREIN SEGMENT-WI SE AND PRODUCT-WISE PERFORMANCE HAS BEEN REPORTED AS UNDER : 'SEGMENT-WISE AND PRODUCT-WISE PERFORMANCE BODHTREE HAS ONLY ONE SEGMENT, NAMELY SOFTWARE DEVE LOPMENT, BEING A SOFTWARE SOLUTIONS COMPANY, IT IS ENGAGED I N PROVIDING OPEN AND END-TO-END WEB SOLUTIONS, SOFTWARE CONSULT ANCY, DESIGN AND DEVELOPMENT OF SOLUTIONS, USING THE LATEST TECH NOLOGY. IT(TP)A.1171/BANG/2011 PAGE - 9 OUTLOOK GIVEN THE STEADY GROWTH IN THE NICHE AREAS LIKE DAT A CLEANSING AND SOFTWARE DEVELOPMENT, AND THE NEW INITIATIVES IN TH E AREAS OF E- PUBLICATION AND E-LEARNING, THE MANAGEMENT HAS REAS ON TO BE OPTIMISTIC ABOUT THE FUTURE GROWTH. REVENUE RECOGNITION REVENUE FROM SOFTWARE DEVELOPMENT IS RECOGNIZED BAS ED ON SOFTWARE DEVELOPED AND BILLED TO CLIENTS.' THUS IT IS CLEAR THAT THIS COMPANY IS HAVING ONE SE GMENT NAMELY SOFTWARE DEVELOPMENT UNDER WHICH THIS COMPANY IS PR OVIDING SOFTWARE SOLUTIONS INCLUDING OPEN AND END-TO-END WE B SOLUTION, SOFTWARE CONSULTANCY, DESIGN AND DEVELOPMENT OF SOL UTION. FURTHER, THE COMPANY IS ALSO PROVIDING DATA CLEANSING AND SO FTWARE DEVELOPMENT. THESE SERVICES ARE IN THE CATEGORY OF SOFTWARE DEVELOPMENT SERVICES AND NOT IN ITES. ACCORDINGLY, WE ARE OF THE VIEW THAT THE SOFTWARE DEVELOPMENT SEGMENT CANNOT B E COMPARED WITH ITES SEGMENT AND HENCE THIS COMPANY CANNOT BE COMPARED WITH THE ASSESSEE'S ITES SEGMENT. ACCORDINGLY, WE D IRECT THE A.O./TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF C OMPARABLES. THE TRIBUNAL THEREAFTER EXCLUDED THE SAME FROM THE LIST OF COMPARABLES. WE ARE OF THE CONSIDERED VIEW THAT THE TRIBUNAL WHI LE ADJUDICATING BODHTREE CONSULTING LTD, IN TESCO HAS NOT HAD THE BENEFIT OF APPRECIATING THE DECISION OF THE COORDINATE BENCH I N THE MATTER OF POLE TO WIN INDIA P. LTD (SUPRA) AND AOL ONLINE IND IA LTD (SUPRA) , WHEREIN ELABORATE DETAILED DISCUSSIONS AND EXAMINAT ION OF FACTS HAVE TAKEN PLACE AT THE LEVEL OF THE TRIBUNAL AND H ENCE THE TRIBUNAL EXCLUDED THESE COMPARABLES. IN VIEW OF THE ABOVE, WE DIRECT EXCLUSION OF BODHTREE CONSULTING LTD. IT(TP)A.1171/BANG/2011 PAGE - 10 14. WITH RESPECT TO INFORMED TECHNOLOGIES LTD, WE H AVE CONSIDERED THE OBJECTION RAISED BY THE REVENUE FOR SENDING THEM BACK TO THE TPO IN THE LIGHT OF DECISION OF TRIBUNA L IN THE MATTER OF TESCO(SUPRA). WE FIND THAT WITH RESPECT TO INFORME D TECHNOLOGIES LTD, THE TRIBUNAL HAD MENTIONED THAT S EGMENTAL DATA IS NOT AVAILABLE AND THEREFORE THE MATTER HAS BEEN REFERRED BACK TO THE FILE OF TPO. HOWEVER THE TRIBUNAL IN THE MATTE R OF POLE TO WIN INDIA P LTD V. DCIT [IT(TP)A.1053/BANG/2011, DT.08. 06.2016] FOR A. Y. 2007-08, HAS HELD AS UNDER : (XVI) INFORMED TECHNOLOGIES LTD. : THIS COMPANY WAS SELECTED BY THE TPO/A.O AND THE ASSESSEE DID NOT CONTEST THE INCLUS ION OF THIS COMPANY EITHER BEFORE THE TPO/A.O OR BEFORE THE CIT (APPEALS). HOWEVER, THE CIT (APPEALS) EXCLUDED THIS COMPANY ON RPT FILTER. WE FIND THAT THE RPT REVENUE OF THIS COMPANY IS 15. 93%. THEREFORE THIS COMPANY FAILS RPT FILTER OF 15% AND ACCORDINGL Y, WE UPHELD THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARAB LES. WE ARE OF THE CONSIDERED VIEW THAT THE TRIBUNAL WHI LE ADJUDICATING INFORMED TECHNOLOGIES , DID NOT HAVE THE BENEFIT OF APPRECIATING THE DECISION OF THE COORDINATE BENCH IN THE MATTER OF P OLE TO WIN INDIA P. LTD (SUPRA), WHEREIN ELABORATE DETAILED DISCUSSI ONS AND EXAMINATION OF FACTS HAVE TAKEN PLACE AT THE LEVEL OF THE TRIBUNAL AND HENCE THE TRIBUNAL EXCLUDED THESE COMPARABLES. IN VIEW OF THE ABOVE, WE DIRECT EXCLUSION OF INFORMED TECHNOLOGIES LTD. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH DAY OF JANUARY, 2019. SD/- SD/- (A. K. GARODIA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBE R BENGALURU DATED : 18.01.2019 MCN* IT(TP)A.1171/BANG/2011 PAGE - 11 COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, BANGALORE.