DCIT 2(3)(1), MUMBAI V. CANVASM TECHNOLOGIES LTD, MUMBAI

ITA 1188/MUM/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8128 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 07-03-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JAYANT KUMAR LD
• Assessee Lawyers: KARTIK NATARAJANLD ARS
• Keywords: Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

1 ITA NO.1188/MUM/2016 M/S. CANVASM TECHNOLOGIES LTD. ASSESSMENT YEAR-2010-11 IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI , , BEFORE HONBLE SHRI SAKTIJIT DEY, JM AND SHRI HONBLE MANOJ KUMAR AGGARWAL, AM ./ I.T A.NO.1188/MUM/2016 ( / ASSESSMENT YEAR: 2010-11) D CIT - 2(3) (1) 5 TH FLOOR, ROOM NO.552, AAYKAR BHAVAN, M.K. ROAD MUMBAI-400 020 / VS. M/S. CANVASM TECHNOLOGIES L TD. (NOW TECH MAHINDRA LTD.) OBEROI ESTATE GARDENS, OPP. SAKI VIHAR ROAD, ANDHERI (W) MUMBAI-400 072. ./ ./PAN/GIR NO. AACCC-8665-N ( /APPELLANT ) : ( / RESPONDENT ) REVENUE BY : SHRI JAYANT KUMAR-LD. CIT-DR ASSESSEE BY : S/SHRI VIRAL SHAH & KARTIK NATARAJAN-LD. ARS !' / DATE OF HEARING : 15/07/2019 #$ !' / DATE OF PRONOUNCEMENT : 18/07/2019 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER): - 1. AFORESAID APPEAL BY REVENUE FOR ASSESSMENT YEAR [IN SHORT REFERRED TO AS AY] 2010-11 CONTEST THE ORDER OF LD. COMMIS SIONER OF INCOME-TAX 2 ITA NO.1188/MUM/2016 M/S. CANVASM TECHNOLOGIES LTD. ASSESSMENT YEAR-2010-11 (APPEALS)-58, MUMBAI [CIT(A)], APPEAL NO. CIT(A)-58/ARR. 142 DATED 09/12/2015 QUA DELETION OF CERTAIN TRANSFER PRICING [TP] ADJUSTMEN T OF RS.12.74 CRORES. THE REVENUE HAS RAISED FOLLOWING S OLE GROUND OF APPEAL: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN DELETING TP ADJUSTMENT OF RS.12,74,38,326/- MADE BY THE TPO / AO BASED ON RESULTS OF SEGMENTAL PROFITABILITY OF AE AND NON-AE FURNISHED BY THE ASSESSEE, WHICH WERE NOT SUBJECTED TO SCRUTINY OF AN AUDITOR. 2. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESS EE [AR], AT THE OUTSET, SUBMITTED THAT LD. FIRST APPELLATE AUTHORIT Y, RELIED UPON THE ORDER OF ITS PREDECESSOR FOR AY 2008-09, WHILE GRANTING RELI EF TO THE ASSESSEE. THE ASSESSEE AS WELL AS REVENUE PREFERRED FURTHER APPEA L BEFORE TRIBUNAL VIDE CROSS-APPEAL ITA NOS. 5875/MUM/2012 & 5852/MUM/2012 ORDER DATED 23/04/2019 WHEREIN THE ASSESSEES APPEAL WAS ALLOWE D WHEREAS THE REVENUES APPEAL WAS DISMISSED. A COPY OF THE ORDER HAS BEEN PLACED ON RECORD. THE SAID FACT COULD NOT BE CONTROVERTED BY LD. CIT-DR. 3. THE MATERIAL ON RECORD WOULD REVEAL THAT CERTAIN INTERNATIONAL TRANSACTIONS BEING CARRIED OUT BY THE ASSESSEE DURI NG THE YEAR, WITH ITS SOLE ASSOCIATED ENTERPRISE [AE] I.E. CANVASM, USA, WERE REFERRED TO LD. TRANSFER PRICING OFFICER [TPO] FOR DETERMINATION OF ARMS LENGTH PRICE [ALP]. THE ASSESSEE WAS STATED TO BE ENGAGED IN PRO VIDING END-TO-END SOLUTIONS WHICH BRING TOGETHER CONTENT, TECHNOLOGY AND DEVICE EXPERTISE TO ENSURE AN ENHANCED DIGITAL EXPERIENCE TO CUSTOMERS OF TELCOS, MEDIA HOUSES AND ENTERPRISES. IT WAS IN RECEIPT OF AMOUNT OF RS.29.24 CRORES FROM ITS AE ON ACCOUNT OF PROVISION FOR SOFTWARE DEVELOP MENT SERVICES AND PAID AN AMOUNT OF RS.12.74 CRORES TO ITS AE ON ACCOUNT O F ONSITE COMPUTER 3 ITA NO.1188/MUM/2016 M/S. CANVASM TECHNOLOGIES LTD. ASSESSMENT YEAR-2010-11 CONSULTANCY AND PROGRAMING SUPPORT SERVICES. UNDER THE CONTRACTUAL TERMS, CANVASM, USA SUB-CONTRACTS THE WORK IT SECURES FROM THIRD PARTIES CUSTOMERS IN USA TO ASSESSEE AND PERFORMS LIMITED O FFSHORE SUPPORT AND ON-SITE SOFTWARE DEVELOPMENT FUNCTIONS. CANVASM RET AINS 5% OF THE REVENUE OUT OF TOTAL FEES RECEIVED BY IT FROM ITS C LIENTS AND REMIT THE BALANCE 95% TO THE ASSESSEE. ADDITIONALLY, CANVASM CHARGES ALL COST IT INCURS FOR THE PERFORMANCE OF ON-SITE PORTION OF THE SOFTWARE DEVELOPMENT WORK TO THE ASSESSEE. FOR THE PURPOSE OF ECONOMIC ANALYSIS, THE TRANSACTIONS WERE AGGREGATED AND BENCHMARKED USING TRANSACTIONAL NET MARGIN METHOD [TNMM]. THE LD. TPO, UPON EXAMINATION, REACHED A CO NCLUSION THAT THE ASSESSEE DID NOT PRODUCE ANY DOCUMENTARY EVIDENCES IN SUPPORT OF CLAIM OF AVAILING ANY SERVICES FROM ITS AE EXCEPT THE COP IES OF INVOICES RAISED BY THE AE AND THEREFORE, THE PAYMENT MADE TO AE FAILS BENEFIT TEST. CONSEQUENTLY, THE ALP OF RS.12.74 CRORES PAID BY AS SESSEE ON ACCOUNT OF AVAILING THE SERVICES, WAS DETERMINED AT NIL AND CORRESPONDING ADJUSTMENT WAS PROPOSED BY LD. TPO, IN ITS ORDER DATED 28/01/2 014. INCORPORATING THE SAME, ASSESSMENT WAS FRAMED BY LD. ASSESSING OFFICE R U/S 143(3) R.W.S. 144C(3)(A) ON 31/03/2014, WHICH WAS SUBJECTED TO FU RTHER APPEAL BEFORE LD. FIRST APPELLATE AUTHORITY. 4. THE LD. CIT(A) WHILE REJECTING THE SEGREGATION A PPROACH ADOPTED BY LD. TPO AND ALSO THE ASSESSEES BENCHMARKING, CHOSE TO APPLY THE METHODOLOGY ADOPTED BY ITS PREDECESSOR IN EARLIER Y EARS. IT WAS NOTED THAT SINCE THE ASSESSEE HAD EXPORT TRANSACTIONS (REVENUE STREAMS) FOR BOTH AES AS WELL AS NON-AES, THE TRANSACTIONS WITH NON-AE WO ULD PROVIDE AN INTERNAL 4 ITA NO.1188/MUM/2016 M/S. CANVASM TECHNOLOGIES LTD. ASSESSMENT YEAR-2010-11 COMPARABLE WHICH WOULD BE MORE RELIABLE FROM THE PO INT OF VIEW OF COMPARABILITY. IN OTHER WORDS, THE LD. FIRST APPELL ATE AUTHORITY PROPOSED TO APPLY INTERNAL TNMM AS MOST APPROPRIATE METHOD AND THE ASSESSEE WAS DIRECTED TO THE FURNISH THE RELEVANT DATA OF TRANSA CTIONS CARRIED OUT WITH ITS AE AS WELL AS NON-AE. THE DATA HAS BEEN EXTRACTED A T PARA 4.12 OF THE IMPUGNED ORDER. UPON PERUSAL, IT WAS OBSERVED THAT THE ASSESSEE HAD MADE A PROFIT OF 28% FROM TRANSACTIONS WITH ITS AE AS AGAINST 6% MARGIN ON TRANSACTIONS WITH ITS INTERNATIONAL THIRD PARTIES A ND THEREFORE, NO ADJUSTMENT WAS REQUIRED ON THIS ACCOUNT. AGGRIEVED, THE REVENU E IS IN FURTHER APPEAL BEFORE US. 5. UPON DUE CONSIDERATION, IT TRANSPIRES THAT LD. F IRST APPELLATE AUTHORITY HAS ADOPTED THE METHODOLOGY FOLLOWED BY ITS PREDECE SSORS IN EARLIER YEARS. THE TRIBUNAL HAS CONFIRMED SIMILAR METHODOLOGY FOLL OWED BY LD. CIT(A) IN AY 2008-09 BY WAY OF DISMISSAL OF REVENUES APPEAL IN ITA NO.5875/MUM/2012 ORDER DATED 23/04/2019 WHICH IS EV IDENT FROM PARAS 6 TO 8 OF THE ORDER. HOWEVER, TO DISPEL THE CONCERNS RAISED BY LD. CIT-DR THAT THE SEGMENTAL RESULTS WERE NOT SUBJECTED TO SCRUTIN Y OF THE AUDITOR AND ALSO IN VIEW OF THE FACT THAT REVENUE HAS RAISED A SPECI FIC GROUND IN THIS RESPECT, WE DIRECT LD. TPO / LD. AO TO VERIFY THE SEGMENTAL RESULTS FURNISHED BY THE ASSESSEE BEFORE LD. CIT(A). FOR THE SAID LIMITED PU RPOSE, THE MATTER WOULD STAND REMITTED BACK TO LD. TPO / LD. AO WITH A DIRE CTION TO THE ASSESSEE TO PROVIDE REQUISITE INFORMATION. IF THE MARGINS ARE F OUND TO BE CORRECT, THE DECISION OF LD. FIRST APPELLATE AUTHORITY WOULD STA ND CONFIRMED. 6. IN RESULT, THE APPEAL STANDS ALLOWED FOR STATIST ICAL PURPOSES. 5 ITA NO.1188/MUM/2016 M/S. CANVASM TECHNOLOGIES LTD. ASSESSMENT YEAR-2010-11 ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH JULY, 2019. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) % %% % / JUDICIAL MEMBER % %% % / ACCOUNTANT MEMBER % MUMBAI; DATED : 18/07/2019 SR.PS:-JAISY VARGHESE / COPY OF THE ORDER FORWARDED TO : 1. ! '# / THE APPELLANT 2. $%'# / THE RESPONDENT 3. && ( ! ) / THE CIT(A) 4. && / CIT CONCERNED 5. ' ($) , &!) , / DR, ITAT, MUMBAI 6. ( +,- / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.