Income-tax Officer, V. Billion Hands Technologies P. Ltd., Pune

ITA 1210/PUN/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0441 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 23-08-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 04-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Assessee Lawyers: SHANTANU PARANJA PE
• Keywords: Transfer pricing; International transaction

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . , ! , # $ BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.1210/PN/2014 #& & / ASSESSMENT YEAR : 2010-11 ITO, WARD-1(1), PUNE . / APPELLANT V/S BILLION HANDS TECHNOLOGIES PVT. LTD., 30/38-1, NEW AJANTA AVENUE, PAUD ROAD, KOTHRUD, PUNE 411 038 PAN : AADCB6992L . / RESPONDENT / APPELLANT BY : SHRI HITENDRA NINAWE / RESPONDENT BY : SHRI SHANTANU PARANJAPE / ORDER PER R.K.PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER DATED 28-03-2014 OF THE CIT(A)-IT/TP, PUNE RELATING TO ASSESSMENT YEAR 2010-11. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A COMPANY ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND PROVIDES SUPPORT TO THE MAIN ACTIVITY OF DESIGNING AND EXPORT OF ONL INE GAMING SOFTWARE AND MOBILE APPLICATIONS. THE ASSESSEE COMPANY IS A SUBSIDIARY OF OPENLOT INDIA HOLDING NV, NETHERLANDS. THE ENTIRE S ERVICES OF THE / DATE OF HEARING :15.11.2016 / DATE OF PRONOUNCEMENT: 23 .11.2016 2 ITA NO.1210/PN/2014 ASSESSEE DURING THE YEAR ARE RENDERED TO ITS HOLDIN G COMPANY LOCATED IN NETHERLANDS. DURING THE YEAR, IT HAS UNDERTAKEN INTERNATIONAL TRANSACTION OF PROVISION OF SOFTWARE DEVELOPMENT AN D OTHER IT SERVICES OF RS. 5,57,75,397/- TO ITS ASSOCIATED ENTERPRISE( AE). THE ASSESSEE COMPANY HAD APPLIED TRANSACTIONAL NET MARGIN METHOD (TNMM) FOR ESTABLISHING THE ARM'S LENGTH NATURE OF ITS INTERNA TIONAL TRANSACTIONS BY USING PROFIT LEVEL INDICATOR (PLI) OF OPERATING PRO FIT TO OPERATING COST (OP/TC). IN ITS TRANSFER PRICING REPORT, PLI OF THE COMPARABLE COMPANIES WAS DETERMINED AT 12.33% AS AGAINST THE PLI OF THE ASSESSEE AT 10.69%. ACCORDINGLY, THE ASSESSEE CONTENDED THAT IT S INTERNATIONAL TRANSACTIONS WERE AT THE ARM'S LENGTH. THE AO IN TH E ASSESSMENT ORDER APPLIED SEVERAL FILTERS AND DETERMINED PLI OF THE F INAL SET OF THE COMPARABLE COMPANIES AT 27.71% AS AGAINST 10.69% OF THE ASSESSEE COMPANY. THIS RESULTED INTO THE ADJUSTMENT OF RS.1, 05,23,210/- TO THE VALUE OF THE INTERNATIONAL TRANSACTION. THUS, THE A O ASSESSED THE ASSESSEE'S INCOME AT RS.1,05,23,210 AS AGAINST THE RETURNED INCOME OF NIL. 3. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT THE AS SESSING OFFICER ERRONEOUSLY SELECTED THE COMPARABLE COMPANIES HAVIN G TURNOVER RANGING FROM RS 50 CRORES TO MORE THAN RS 1,000 CRO RES, WHILE THE ASSESSEE'S TURNOVER WAS ONLY OF RS5.57 CR. THE ASSE SSEE SUBMITTED THAT THE ASSESSING OFFICER SHOULD HAVE SELECTED THE COMPARABLE COMPANIES HAVING TURNOVER IN THE, RANGE OF RS 1 CRORE TO RS 200 CRORES. LT WAS STATED THAT IF THIS TURNOVER FILTER IS APPLI ED, THEN FOLLOWING COMPANIES HAVING TURNOVER OF EXCESS OF RS 200 CRORE S WILL BE EXCLUDED: NAME OF THE COMPANY TURNOVER DURING THE RELEVANT PERIOD (AMOUNT IN RS. CR.) INFOSYS TECHNOLOGIES 22 ,050 LARSON AND TURBO INFOTECH LIMITED 37,187 SONATA SOFTWARE LIMITED 241 TATA ELXI 337 PERSISTENT SYSTEMS LIMITED 517 3 ITA NO.1210/PN/2014 4. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) ALLOWED THE GROUND RAISED BEFORE HIM BY O BSERVING AS UNDER : 2.2.3 I HAVE CONSIDERED THE APPELLANT'S ARGUMENT. IT IS SETTLED THAT REASONABLE TURNOVER FILTER HAS TO BE APPLIED TO SELECT THE COMPARABLE COMPANIES. THE APPELLANT HAS TURNOVER OF RS 5.57 CR. T HEREFORE, IT WOULD NOT BE PROPER TO COMPARE IT WITH THE COMPANIE S HAVING VERY HIGH TURNOVER. THE TURNOVER FILTER HAS BEEN LAID DOWN BY THE HONOURABLE BANGALORE TRIBUNAL IN THE CASE OF GENESYS INTEGRATING SYSTEMS INDIA PRIVATE LIMITED, ACCORDING TO WHICH, TURNOVER FILTE R OF RS 1CR TO RS 200 CR SHOULD BE APPLIED WHEN A TESTED PARTY HAS TURNOVER OF APPROXIMATELY RS 8 CR. THIS IS SETTLED TURNOVER FILTER IN THE INDIAN TRANSFER PRICING PROCEEDINGS. IN VIEW OF THIS DECISION, I DIRECT THE LE ARNED AO TO APPLY TURNOVER FILTER OF RS 1 CR TO RS 200 CRTO THE FINAL SET OF COMPARABLE COMPANIES AND EXCLUDE THE COMPARABLE COMPANIES HAVING TURNOVER IN EXCESS OF RS 200 CR FROM THE FINAL SET OF THE COMPARABL E COMPANIES. 5. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVE NUE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO A PPLY TURNOVER OF RS.1 CRORE TO RS.200 CRORE TO THE SET OF COMPARABLE COMPANIES AND EXCLUDE COMPARABLE COMPANIES HAVING TURNOVER IN EXCESS OF RS.200 CRORES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, T HE LD.CIT(A) ERRED IN NOT CONSIDERING THE FACT THAT THE ASSESSING OFFICER HAS NOT APPLIED ANY TURNOVER FILTER WHILE SE LECTING THE FINAL COMPARABLE COMPANIES. THE ASSESSING OFFICER HAS CONSIDER ED ALL THE POTENTIAL COMPANIES IRRESPECTIVE OF ITS TURNOVER L EVEL. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, T HE LD.CIT(A) ERRED IN IGNORING THE DECISION OF HONBLE ITAT, MUMBAI IN THE CASE OF SYMANTIC SOFTWARE SERVICES PVT. LTD. I N ITA NO.7894/M/2010 WHEREIN IT WAS HELD THAT THERE IS NO D IRECT RELATIONSHIP BETWEEN THE TURNOVER AND PROFIT MARGINS IN CASE OF SERVICE INDUSTRIES. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY OR ALL THE GROUNDS OF APPEAL. 6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONS IDERED THE VARIOUS DECISIONS CITED BEFORE US. THE ONLY DISPUTE IN TH E GROUNDS RAISED BY THE REVENUE IN THE IMPUGNED APPEAL IS REGARDING THE ORDER OF THE 4 ITA NO.1210/PN/2014 CIT(A) IN DIRECTING THE AO TO APPLY THE TURNOVER FI LTER OF RS.1 CRORES TO RS.200 CRORES AND EXCLUDE THE COMPARABLE COMPANIES HAVING TURNOVER FILTER IN EXCESS OF RS.200 CRORES. FROM THE VARIOU S DETAILS FURNISHED BY THE ASSESSEE IN THE PAPER BOOK AS WELL AS A PERUSAL OF THE ORDERS OF THE AO/CIT(A) WE FIND THE TURNOVER OF THE ASSESSEE IS ONLY RS.5.57 CRORES. THE TPO WHILE SELECTING THE COMPARABLE COM PANIES TOOK TURNOVER FILTER RANGING FROM RS.50 CRORES TO RS.100 0 CRORES. THE SUBMISSION OF THE ASSESSEE BEFORE CIT(A) THAT THE A O SHOULD HAVE SELECTED COMPARABLE COMPANIES HAVING TURNOVER IN TH E RANGE OF RS.1 CRORE TO RS.200 CRORES SHOULD HAVE BEEN APPLIED WAS ACCEPTED BY THE CIT(A). WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) DIRECTING THE AO TO APPLY THE TURNOVER FILTER OF RS.1 CRORES TO RS.200 CRORES AS AGAINST RS.1 CRORES TO RS.1000 CRORES TURNOVER FILT ER ADOPTED BY THE ASSESSING OFFICER/TPO. 7. WE FIND THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. AGINITY INDIA TECHNOLOGIES PVT. LTD. REPORTED IN 21 9 TAXMANN 26 HAS HELD THAT A GIANT COMPANY IN AREA OF DEVELOPMENT OF SOFTWARE COULD NOT BE COMPARABLE TO CAPTIVE UNITS. THE BANGALORE BENC H OF THE TRIBUNAL IN THE CASE OF GENESYS INTEGRATING SYSTEM INDIA PVT . LTD. VS. DCIT REPORTED IN 53 SOT 159 HAS HELD THAT FOR THE PURPOS E OF CLASSIFICATION OF COMPANIES ON THE BASIS OF NET SALES OR TURNOVER, A REASONABLE CLASSIFICATION HAS TO BE MADE. THE ASSESSEE HAVING TURNOVER OF RS.8.15 CRORE, THE COMPANIES WHICH ALSO HAVE TURNOV ER OF RS.1 CRORE TO RS.200 CRORES ONLY SHOULD BE TAKEN INTO CONSIDERATI ON FOR THE PURPOSE OF MAKING TP STUDY. THE BANGALORE BENCH OF THE TRI BUNAL IN THE CASE OF TEKTRONIX ENGINEERING DEVT. INDIA PVT. LTD. VS. DCIT REPORTED IN 69 SOT 1 HAS HELD THAT TURNOVER FILTER IS VERY IMPORTA NT AND COMPANIES HAVING TURNOVER OF RS.1 CRORE TO RS.200 CRORES HAD TO BE TAKEN AS PARTICULAR RANGE. SINCE ASSESSEES TURNOVER WAS RS .47.47 CRORES THE 5 ITA NO.1210/PN/2014 SAME FALLS WITHIN CATEGORY OF COMPANIES IN RANGE OF TURNOVER BETWEEN RS.1 CRORE AND RS.200 CRORES. IT HELD THAT THE COM PANIES HAVING TURNOVER OF MORE THAN RS.200 CRORES HAD TO BE ELIMI NATED FROM THE LIST OF COMPARABLES. IT ACCORDINGLY DIRECTED THE TPO TO EXCLUDE THE COMPANIES HAVING TURNOVER OF MORE THAN RS.200 CRORE S. THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF BITWISE SOLUTI ONS PVT. LTD. VS. ACIT REPORTED IN 66 SOT 022 HAS ALSO HELD SIMILAR V IEW. 8. THE VARIOUS OTHER DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE WHICH ARE FILED IN THE PAPER BOOK ALSO SUP PORT THE CASE OF THE ASSESSEE. SINCE THE TURNOVER OF THE ASSESSEE COMPA NY IN THE INSTANT CASE IS ONLY RS.5.58 CR, THEREFORE, THE LD.CIT(A), IN OUR OPINION, HAS RIGHTLY DIRECTED THE AO/TPO TO APPLY THE TURNOVER F ILTER OF RS.1 CRORE TO RS. 200 CRORES OF THE COMPARABLE COMPANIES AND DIRE CTED THE AO TO EXCLUDE THE COMPANIES HAVING TURNOVER OF MORE THAN RS.200 CRORES. IN THIS VIEW OF THE MATTER WE DO NOT FIND ANY INFIRMIT Y IN THE ORDER OF THE CIT(A) DIRECTING THE AO TO APPLY THE TURNOVER FILTE R RS.1 CRORE TO RS.200 CRORES 9. SO FAR AS THE DECISION IN THE CASE OF SYMANTEC S OFTWARE SOLUTIONS PVT. LTD. VS. ACIT REPORTED IN 46 SOT 48 (MUMBAI) RELIED ON BY THE REVENUE IN THE GROUNDS OF APPEAL IS CONCERNE D, THE SAME IN OUR OPINION IS NOT APPLICABLE TO THE FACTS OF THE PRESE NT CASE. INFACT THE TRIBUNAL IN THE SAID DECISION HAS HELD THAT THERE IS NO QUARREL ON THE POINT THAT IF THE COMPARABLES PROPOSED TO BE TAKEN INTO CONSIDERATION BY THE TPO ARE HAVING ABNORMAL DIFFERENCE OF TURNOV ER IN COMPARISON TO THE TURNOVER OF THE ASSESSEE, AND IF IT IS APPAR ENT DUE TO SUCH ABNORMAL DIFFERENCE IN THE TURNOVER, THE OPERATING PROFITS OF THE COMPARABLES GOT DISTORTED THEN IN SUCH A CASE, THOS E COMPARABLES SHOULD BE EXCLUDED FROM THE LIST OF ALP. THEREFORE , THE DECISION RELIED 6 ITA NO.1210/PN/2014 ON BY THE REVENUE, INFACT, SUPPORTS THE CASE OF THE ASSESSEE. IN THIS VIEW OF THE MATTER AND IN VIEW OF THE REASONINGS GI VEN BY THE CIT(A) ON THIS ISSUE, WE FIND NO INFIRMITY IN HIS ORDER. ACC ORDINGLY, THE ORDER OF CIT(A) IS UPHELD AND THE GROUNDS RAISED BY THE REVE NUE ARE DISMISSED. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 23-11-2016. SD/- SD/- (VIKAS AWASTHY) (R.K. PANDA) JUDICIAL MEMBER ACCOUNT ANT MEMBER PUNE; DATED : 23 RD NOVEMBER, 2016. ) *#,! -! / COPY OF THE ORDER FORWARDED TO : / BY ORDER , // # % / TRUE COPY // // TRUE COPY // &' % * / SR. PRIVATE SECRETARY *, / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT (A ), IT/T P, PUNE 4. 5. THE CIT-IT/TP, PUNE # %%*, *, B BENCH / DR, ITAT, B BENCH PUNE; 6. 2 / GUARD FILE.