Appeal details
Counselvise Citation
[2014] 120 COUNSELVISE.COM (IT) 8508 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 7 month(s) 29 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
30-09-2014
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
B
Next Hearing Date
19-09-2013
Assessment Year
2006-2007
Appeal Filed On
31-01-2011
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO.122/PN/2011 (ASSESSMENT YEAR : 2006-07) M/S SUNGARD SOLUTIONS (INDIA) PVT. LTD., [FORMERLY KNOWN AS AUTOMATED SECURITIES CLEARANCE (INDIA)], WESTEND CENTER ONE, SURVEY NO.169/1, SECTOR II, AUNDH, PUNE 411 007. PAN : AACCA7484M . APPELLANT VS. DY. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION)-I, PUNE. . RESPONDENT ASSESSEE BY : MRS. KARISHMA PHATARPHEKAR, DEPARTMENT BY : MR. A. K. MODI, CIT DATE OF HEARING : 19-08-2014 DATE OF PRONOUNCEMENT : 30-09-2014 ORDER PER G. S. PANNU, AM THE CAPTIONED APPEAL HAS BEEN PREFERRED BY THE ASSE SSEE PERTAINING TO THE ASSESSMENT YEAR 2006-07, AND IS DIRECTED AGAINS T THE ORDER OF THE DY. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION)-I, PUNE (IN SHORT THE ASSESSING OFFICER) PASSED U/S 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 26.11.2010, WHICH IS IN CONFORMITY WITH THE DIRECTIONS GIVEN BY THE DISPUTE RESOLUTION PANEL, PUNE (IN SHO RT THE DRP) DATED 30.09.2010. 2. IN BRIEF, BACKGROUND OF THE DISPUTE CAN BE SUMMA RIZED AS FOLLOWS. THE APPELLANT-ASSESSEE BEFORE US IS BRANCH OFFICE OF A FOREIGN COMPANY, M/S SUNGARD TRADING SYSTEMS OF USA (STS), WHICH IS ONE OF THE SUBSIDIARIES OF SUNGARD DATA SYSTEMS INC (IN SHORT SDS). SDS IS A GLOBAL LEADER IN INTEGRATED IT AND E-PROCESSING SOLUTIONS FOR THE FI NANCIAL SERVICES SECTOR. THE ASSESSEE BEFORE US CARRIES OUT SOFTWARE DEVELOPMENT SERVICES FOR THE ITA NO.122/PN/2011 A.Y. : 2006-07 SUBSIDIARIES OF SDS, USA WHICH INCLUDE DEVELOPMENT OF SOFTWARE AND COMPONENTS OF SOFTWARE PRODUCTS DEVELOPED AS PER TH E REQUIREMENTS OF THE SUNGARD GROUP ENTITIES. FOR THE ASSESSMENT YEAR UN DER CONSIDERATION, ASSESSEE FILED ITS RETURN OF INCOME DECLARING A TOT AL INCOME OF RS.49,44,080/-. ON ACCOUNT OF THE ASSESSEE HAVING UNDERTAKEN INTERN ATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES ABROAD BY WAY OF SOFTWAR E DEVELOPMENT SERVICES, THE ASSESSING OFFICER MADE A REFERENCE TO THE TRANS FER PRICING OFFICER (IN SHORT TPO) U/S 92CA(1) OF THE ACT FOR DETERMINATION OF THE ARM'S LENGTH PRICE OF SUCH INTERNATIONAL TRANSACTIONS. THE TPO NOTICED F ROM THE TRANSFER PRICING STUDY SUBMITTED BY THE ASSESSEE THAT IT HAD SELECTE D TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD IN ORD ER TO BENCHMARK THE INTERNATIONAL TRANSACTION RELATING TO SOFTWARE DEVE LOPMENT SERVICES RENDERED TO THE ASSOCIATED ENTERPRISES. IN THE TNMM ANALYSIS, THE PROFIT LEVEL INDICATOR (PLI) WAS TAKEN AS A RATIO OF OPERATING PROFITS TO OPERATING COSTS. ON THE BASIS OF THE FAR ANALYSIS, ASSESSEE HAD IDENTIFIED 38 COMPARABLES. THE COMPARABILITY ANALYSIS DONE BY THE ASSESSEE SHOWED THAT THE MEAN PLI OF THE COMPARABLE CONCERNS ENGAGED IN SOFTWARE DEVELOPMENT SERVICES WAS 10.88% BY CONSIDERING WEIGHTED AVERAGE MARGIN OF THREE YEA RS; AND, BY USING UPDATED MARGINS FOR THE FINANCIAL YEAR UNDER CONSIDERATION IT WAS 7.69%. SINCE THE MARGIN OF THE ASSESSEE WAS 14.50%, IT WAS CONTENDED THAT THE INTERNATIONAL TRANSACTIONS RELATING TO THE SOFTWARE DEVELOPMENT S ERVICES RENDERED TO THE ASSOCIATED ENTERPRISES WAS AT AN ARM'S LENGTH PRICE . 3. THE TPO HAS, HOWEVER, DIFFERED WITH THE ASSESSEE ON VARIOUS ASPECTS, AS DETAILED IN THE ORDER PASSED BY HIM U/S 92CA(3) OF THE ACT DATED 28.10.2009. BEREFT OF OTHER DETAILS, FOR THE PRESE NT IT WOULD SUFFICE TO NOTE THAT THE TPO OBSERVED THAT 33 OUT OF 38 COMPARABLE CONCE RNS CHOSEN BY THE ASSESSEE DESERVED TO BE EXCLUDED. FURTHER, AS PER THE TPO, ANOTHER 3 COMPARABLE CONCERNS DESERVED TO BE INCLUDED FOR THE PURPOSES OF CARRYING OUT THE COMPARABILITY ANALYSIS. IN THE FINAL ANALYSIS MADE BY THE TPO HE ITA NO.122/PN/2011 A.Y. : 2006-07 CONSIDERED A SET OF 8 COMPARABLES AND THE ARITHMETI C MEAN OF THEIR MARGINS WAS DETERMINED AT 28.29%. THE MARGIN OF THE ASSESS EE BEING 14.50%, THE TPO PROCEEDED TO MAKE ADJUSTMENT TO THE STATED VALU E OF INTERNATIONAL TRANSACTIONS SO AS TO WORK OUT THEIR ARM'S LENGTH P RICE. THE TPO ALLOWED AN ADJUSTMENT TOWARDS DIFFERENCES IN WORKING CAPITAL O N THE FINAL SET OF COMPARABLES, WHICH WAS DETERMINED BY HIM AT 1.68%, AS PER A WORKING ANNEXED TO HIS ORDER. ACCORDINGLY, THE ARITHMETIC MEAN OF THE FINAL SET OF 8 COMPARABLE CONCERNS, AFTER THE WORKING CAPITAL ADJU STMENT, WAS WORKED OUT BY THE TPO AT 26.61% (28.29% MINUS 1.68%). ACCORDINGLY, HE WORKED OUT AN ADJUSTMENT OF RS.4,17,52,924/- TO THE STATED VALUE OF THE INTERNATIONAL TRANSACTION OF SOFTWARE DEVELOPMENT SERVICES RENDER ED BY THE ASSESSEE TO THE ASSOCIATED ENTERPRISES IN ORDER TO BRING IT TO AN A RM'S LENGTH PRICE. 4. BASED ON THE ORDER OF THE TPO DATED 28.10.2009, THE ASSESSING OFFICER PROPOSED A DRAFT ASSESSMENT ORDER U/S 143(3) R.W.S. 144C OF THE ACT ON 23.12.2009 PROPOSING TO COMPUTE ASSESSEES TOTAL IN COME BY INCLUDING A SUM OF RS.4,17,52,924/- ON ACCOUNT OF ADJUSTMENT TO INT ERNATIONAL TRANSACTION FOR THE PURPOSES OF DETERMINING ITS ARM'S LENGTH PRICE. THE ASSESSEE RAISED OBJECTIONS TO THE DRAFT ASSESSMENT ORDER BY APPROAC HING THE DISPUTE RESOLUTION PANEL (IN SHORT DRP). THE DRP VIDE OR DER DATED 30.09.2010 DISPOSED-OFF THE OBJECTIONS FILED BY THE ASSESSEE C OMPANY. AS AGAINST AN ADJUSTMENT OF RS.4,17,52,924/- PROPOSED BY THE TPO, THE DRP DIRECTED THE ASSESSING OFFICER TO WORK OUT THE TOTAL INCOME OF T HE INTERNATIONAL TRANSACTION BY MAKING AN ADJUSTMENT OF RS.3,80,98,474/-. IN CO MING TO SUCH CONCLUSION, THE DRP CONSIDERED A SET OF 9 COMPARABLE CONCERNS, AS AGAINST 8 CONSIDERED BY THE TPO. THE ARITHMETIC MEAN OF THE FINAL SET O F 9 COMPARABLE CONCERNS WAS DETERMINED AT 26.78% AND THE WORKING CAPITAL AD JUSTMENT WAS DETERMINED BY THE DRP AT 1.23% AS AGAINST 1.68% DET ERMINED BY THE TPO. ACCORDINGLY, THE ADJUSTED ARITHMETIC MEAN OF THE FI NAL SET OF COMPARABLES WAS WORKED OUT BY THE DRP AT 25.55% (I.E. 26.78% MINUS 1.23%). CONSEQUENTLY, ITA NO.122/PN/2011 A.Y. : 2006-07 THE ASSESSING OFFICER HAS FINALIZED THE ASSESSMENT U/S 143(3) R.W.S. 144C(13) OF THE ACT DATED 11.12.2010 BY MAKING AN ADDITION O F RS.3,80,98,474/- ON ACCOUNT OF ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF SOFTWARE DEVELOPMENT SERVICES RENDERED BY ASSESSEE TO ITS AS SOCIATED ENTERPRISES. THE AFORESAID ADDITION IS THE SUBSTANTIVE DISPUTE R AISED BY THE ASSESSEE IN ITS APPEAL BEFORE US. 5. IN THE ABOVE BACKGROUND, RIVAL COUNSELS HAVE BEE N HEARD. ON BEHALF OF THE APPELLANT, A PAPER BOOK HAS ALSO BEEN FILED WHI CH, INTER-ALIA, INCLUDES WRITTEN SUBMISSIONS MADE BEFORE THE LOWER AUTHORITI ES. THE MATERIAL REFERRED TO IN THE COURSE OF HEARING AND THE RELEVANT RECORD HAS BEEN PERUSED. 6. AT THE TIME OF HEARING, THE FIRST AND THE FOREMO ST PLEA BY THE ASSESSEE IS THAT THE TPO ERRED IN INCLUDING IN THE LIST OF COMP ARABLES THE FOLLOWING 3 CONCERNS WHICH WERE NOT CONSIDERED BY THE ASSESSEE IN ITS TRANSFER PRICING STUDY ON THE GROUND THAT THE SAME ARE NOT COMPARABL E WITH THE TESTED TRANSACTIONS : (I) AVANI CINCOM TECHNOLOGIES LTD.; (II) COMPUCON SOFTWARE LTD.; AND, (III) SIP TECHNOLOGIES AND EXPORT LTD. 7. ON THE INCLUSION OF THE COMPUCON SOFTWARE LTD. A S A COMPARABLE BY THE TPO, THE OBJECTION OF THE APPELLANT IS THAT THE SAID CONCERN HAS A SUBSTANTIAL PERCENTAGE OF RELATED PARTY TRANSACTION S (I.E. RPTS) AND THEREFORE THE SAME IS LIABLE TO BE EXCLUDED. IN SU PPORT, ASSESSEE HAS FURNISHED A WORKING OF THE RPTS WHICH SHOWS THAT TH E SAID CONCERN HAS TRANSACTIONS BY WAY OF EXPENDITURE ON SERVICES RECE IVED FROM ASSOCIATED ENTERPRISES WHICH IS TO THE TUNE OF 31.51% OF THE T OTAL EXPENDITURE. THE LEARNED CIT-DR HAS OPPOSED THE PLEA OF THE ASSESSEE BY REFERRING TO THE DISCUSSION MADE BY THE TPO IN THIS REGARD IN PARA 6 .5.2 OF HIS ORDER. AS PER THE TPO, THE RECEIPTS FOR SERVICES RENDERED AND PAY MENT FOR SERVICES RECEIVED VIS--VIS THE ASSOCIATED ENTERPRISES ARE TO THE TUN E OF RS.15 LAKHS AND RS.5.1 ITA NO.122/PN/2011 A.Y. : 2006-07 CRORES RESPECTIVELY WHICH ACCORDING TO HIM ARE LESS THAN 25% OF THE TOTAL TURNOVER OF THE ASSESSEE. FOR THIS REASON, IT IS C ONTENDED BY THE REVENUE THAT THERE ARE NO SUBSTANTIAL RPTS AND THE SAID CONCERN BEING FUNCTIONALLY COMPARABLE, THE SAME SHOULD NOT BE EXCLUDED FROM TH E LIST OF COMPARABLES. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS ON THIS ASPECT AND WE ARE UNABLE TO UPHOLD THE STAND OF THE REVENUE. THE DISCUSSION MADE BY THE TPO IN PARA 6.5.2 OF HIS ORDER ON THE IMPUGNED ISSUE SHOWS THAT HE HAS CONSIDERED A FILTER 25% OF THE RPTS FOR THE PURPOSE OF EXCLUDING A CONCERN FROM THE LIST OF COMPARABLES. WHILE APPLYING THE S AID FILTER IN THE CASE OF COMPUCON SOFTWARE LTD. HE HAS AGGREGATED THE RECEIP TS FOR SERVICES RENDERED AND THE PAYMENTS MADE FOR SERVICES RECEIVED AND THE REAFTER HE HAS DIVIDED THE TOTAL FIGURE BY THE TOTAL TURNOVER OF THE ASSES SEE. QUITE CLEARLY, THE NUMERATOR CONSIDERED BY THE TPO COMPRISES OF RECEIP TS FOR SERVICES RENDERED AS ALSO THE PAYMENTS MADE FOR SERVICES RECEIVED MEA NING THEREBY THAT SALES AS WELL AS EXPENSES HAVING A COMPONENT OF RPTS ARE INCLUDED, WHEREAS THE DENOMINATOR COMPRISED OF ONLY THE SALES COMPONENT. OSTENSIBLY, THE AFORESAID FORMULA WOULD GIVE A DISTORTED PICTURE OF THE RATIO OF RPTS TO THE TOTAL TRANSACTIONS. IF TOTAL EXPENSES INCURRED BY THE AS SESSEE BY WAY OF PAYMENTS TO ASSOCIATED ENTERPRISES IS DIVIDED BY THE TOTAL E XPENSES INCURRED, THE RATIO OF RPTS TO THE TOTAL TRANSACTIONS EXCEED 25%, AS PER T HE WORKING MADE BY THE ASSESSEE. IN VIEW OF THE AFORESAID INCORRECT APPRO ACH OF THE TPO IN ORDER TO CALCULATE THE LEVEL OF RPTS, COMPUCON SOFTWARE LTD. HAS BEEN WRONGLY INCLUDED AS A COMPARABLE. MOREOVER, THE ASSESSEE H AS ALSO REFERRED TO A DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE C ASE OF BINDVIEW INDIA (P.) LTD. VS. DCIT, (2013) 34 TAXMANN.COM 164 (PUNE-TRIB .) RELATING TO THE ASSESSMENT YEAR 2006-07 WHEREIN THE RPTS IN THE CAS E OF COMPUCON SOFTWARE LTD. HAVE BEEN ACCEPTED AS BEING IN EXCESS OF 25% OF THE TOTAL TRANSACTIONS. ON THIS BASIS ALSO, WE FIND THAT THE PLEA OF THE ASSESSEE TO EXCLUDE COMPUCON SOFTWARE LTD. FROM THE LIST OF COM PARABLES HAS BEEN ITA NO.122/PN/2011 A.Y. : 2006-07 WRONGLY NEGATED BY THE LOWER AUTHORITIES. WE ORDER ACCORDINGLY AND ASSESSEE SUCCEEDS ON THIS ASPECT. 9. SECONDLY, WITH RESPECT TO THE INCLUSION OF AVANI CINCOM TECHNOLOGIES LTD. AS A COMPARABLE BY THE TPO, ASSESSEE HAS OBJEC TED TO ITS INCLUSION ON THE PLEA THAT THE FINANCIAL DATA OF THE SAID CONCER N USED BY THE TPO WAS NOT CONTEMPORANEOUS, AS IT WAS NOT AVAILABLE IN PUBLIC DOMAIN WHEN THE ASSESSEE PREPARED ITS TRANSFER PRICING STUDY. THE AFORESAID OBJECTION OF THE ASSESSEE HAS BEEN REJECTED BY THE TPO PRIMARILY ON THE GROUN D THAT AT THE TIME OF THE TRANSFER PRICING PROCEEDINGS BEING CARRIED OUT BY T HE TPO, THE FINANCIAL DATA OF THE SAID CONCERN WAS AVAILABLE IN PUBLIC DOMAIN. O N THIS ASPECT, WE DO NOT FIND ANY INFIRMITY IN THE STAND OF THE TPO. IN THI S CONTEXT, IT WOULD BE RELEVANT TO REFER TO SUB-RULE (4) OF RULE 10B OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES) WHICH PRESCRIBES THAT THE DATA TO BE USED I N ANALYZING THE COMPARABILITY OF AN UNCONTROLLED TRANSACTION WITH A N INTERNATIONAL TRANSACTION SHALL BE DATA RELATING TO THE FINANCIAL YEAR IN WHI CH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO. QUITE CLEARLY, THE FINANCIA L DATA OF AVANI CINCOM TECHNOLOGIES LTD. USED BY THE TPO CORRESPONDS TO TH E FINANCIAL YEAR IN WHICH THE IMPUGNED INTERNATIONAL TRANSACTIONS HAVE BEEN E NTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISE. THE CASE SETUP BY THE ASSESSEE IS BASED ON RULE 10D OF THE RULES WHICH ENUMERATES THE INFORMATION AND DOCUMENTS TO BE KEPT AND MAINTAINED U/S 92D OF THE ACT. SECTION 92D OF THE ACT PRESCRIBES THAT A PERSON WHO HAS ENTERED INTO A N INTERNATIONAL TRANSACTION SHALL KEEP AND MAINTAIN SUCH INFORMATION AND DOCUME NTS IN RESPECT THEREOF, AS MAY BE PRESCRIBED; AND, SUCH PRESCRIPTION HAS BE EN ENUMERATED IN RULE 10D OF THE RULES. AS PER THE APPELLANT, SUB-RULE ( 4) OF RULE 10D OF THE RULES PRESCRIBES THAT THE INFORMATION AND DOCUMENTS TO BE KEPT AND MAINTAINED SHOULD BE CONTEMPORANEOUS AND EXIST LATEST BY THE S PECIFIED DATE REFERRED TO IN SECTION 92F(IV) OF THE ACT, WHICH IN THE PRESENT CASE IS THE DUE DATE OF FILING OF THE RETURN U/S 139(1) OF THE ACT. ON THIS BASIS , IT IS SOUGHT TO BE CANVASSED ITA NO.122/PN/2011 A.Y. : 2006-07 THAT THE FINANCIAL DATA TO BE USED FOR CARRYING OUT THE COMPARABILITY ANALYSIS SHOULD BE BASED ON A DATA AVAILABLE ON THE DATE WHE N THE ASSESSEE CARRIED OUT ITS TRANSFER PRICING STUDY OR AT LEAST LATEST B Y THE DATE OF FILING OF THE RETURN U/S 139(1) OF THE ACT. IN OUR CONSIDERED OPINION, THE PLEA OF THE APPELLANT IS QUITE MISPLACED INASMUCH AS RULE 10D OF THE RULES M ERELY SEEKS TO REQUIRE AN ASSESSEE TO MAINTAIN INFORMATION AND DOCUMENTS WITH RESPECT TO THE INTERNATIONAL TRANSACTIONS CARRIED OUT BY IT AND IN THAT CONTEXT, IT IS PRESCRIBED IN SUB-RULE (4) OF RULE 10D OF THE RULES THAT AS FAR AS POSSIBLE , SUCH INFORMATION AND DOCUMENTS SHOULD BE CONTEMPORANEOUS AND SHOULD EXIST LATEST BY THE DATE SPECIFIED THEREIN I.E. DUE DATE OF FILING OF T HE RETURN U/S 139(1) OF THE ACT. SO HOWEVER, THERE IS NO EMBARGO PUT EITHER IN THE A CT OR IN THE RULES TO SAY THAT THE ARM'S LENGTH PRICE OF AN INTERNATIONAL TRA NSACTION, WHICH IS REQUIRED TO COMPUTE THE INCOME ARISING FROM AN INTERNATIONAL TR ANSACTION, SHOULD BE BASED ON AN INFORMATION WHICH IS CONTEMPORANEOUS SO AS TO EXIST LATEST BY THE DUE DATE OF FILING OF THE RETURN U/S 139(1) OF THE ACT. THUS, THE AFORESAID PLEA OF THE ASSESSEE IS REJECTED. 10. ANOTHER REASON ADVANCED BY THE ASSESSEE TO JUST IFY EXCLUSION OF AVANI CINCOM TECHNOLOGIES LTD. AS A COMPARABLE, IS THAT T HE SAID CONCERN IS CARRYING OUT FUNCTIONALLY DIFFERENT ACTIVITIES. TH E PLEA OF THE ASSESSEE IS THAT THE SAID CONCERN IS INVOLVED IN PRODUCTS, CONSULTIN G AND OTHER SERVICES APART FROM SOFTWARE DEVELOPMENT ACTIVITIES AND THEREFORE IT IS FUNCTIONALLY DIFFERENT THAN THE ASSESSEE, WHOSE ONLY ACTIVITY IS OF SOFTWA RE DEVELOPMENT SERVICES. IN SUPPORT, A REFERENCE HAS BEEN MADE TO PAGE 4 OF THE PAPER BOOK WHEREIN IS PLACED A WEBSITE EXTRACT OF THE SAID CONCERN JUSTIF YING THE PLEA THAT THE SAID CONCERN IS ENGAGED IN DEVELOPMENT OF PRODUCTS AND S ALE THEREOF AND NOT IN PURE SOFTWARE DEVELOPMENT SERVICES. IT IS ALSO POI NTED OUT THAT THERE IS NO SEGMENTAL DATA PERTAINING TO THE SOFTWARE DEVELOPME NT SEGMENT OF THE SAID CONCERN AND THEREFORE THE SAID CONCERN IS LIABLE TO BE EXCLUDED. IN SUPPORT, A REFERENCE HAS BEEN MADE TO THE DECISION OF THE MUMB AI BENCH OF THE TRIBUNAL ITA NO.122/PN/2011 A.Y. : 2006-07 IN THE CASE OF TELCORDIA TECHNOLOGIES INDIA (P.) LT D. VS. ACIT, (2012) 22 TAXMANN.COM 96 (MUM). 11. ON THE OTHER HAND, THE LEARNED CIT-DR SUBMITTED THAT THE TPO AS WELL AS THE DRP HAVE REJECTED THE OBJECTIONS OF THE ASSE SSEE BECAUSE THE SAID CONCERN WAS SAID TO BE ENGAGED IN PROVIDING STATE O F ART TECHNOLOGY SOLUTION AND SERVICES TO DIFFERENT ORGANIZATIONS. THEREFORE , ACCORDING TO HIM, BROADLY SPEAKING THE SAID CONCERN WAS ENGAGED IN SOFTWARE D EVELOPMENT SERVICES ALSO. THE RELIANCE PLACED BY THE ASSESSEE ON THE D ECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF TELCORDIA TECH NOLOGIES INDIA (P.) LTD. (SUPRA) WAS ALSO ASSAILED ON THE GROUND THAT THE SA ID DECISION RELATED TO A DIFFERENT ASSESSMENT YEAR AND FURTHER THAT MUMBAI B ENCH OF THE TRIBUNAL EXCLUDED THE SAID CONCERN ON THE GROUND OF ABSENCE OF RELEVANT DATA. ACCORDING TO THE LEARNED CIT-DR, ON THIS BASIS IT C OULD NOT BE ESTABLISHED THAT THE SAID CONCERN WAS FUNCTIONALLY DIFFERENT THAN TH E ASSESSEE. 12. WE HAVE CONSIDERED THE RIVAL STANDS ON THIS ASP ECT AND FIND THAT THE ASSESSEE IS JUSTIFIED IN SEEKING EXCLUSION OF AVANI CINCOM TECHNOLOGIES LTD. FROM THE FINAL LIST OF COMPARABLES. IN-FACT, THE O RDER OF THE TPO ESPECIALLY PARA 6.5.2 BRINGS OUT THAT THE SAID CONCERN IS ENGAGED I N PROVIDING STATE OF ART TECHNOLOGY SOLUTION AND SERVICES TO ORGANIZATIONS I N DIFFERENT VERTICALS LIKE TRAVEL, INSURANCE, FINANCIAL SERVICES, HEALTHCARE, LAW, TRANSPORTATION AND OTHERS. THE FACTUM OF THE SAID CONCERN BEING ENGAG ED IN DEVELOPMENT OF PRODUCTS AND SALE THEREOF APART FROM BEING ENGAGED IN SOFTWARE DEVELOPMENT SERVICES IS NOT DENIED BY THE AUTHORITIES BELOW. T HEREFORE, IN SUCH A SITUATION, ONLY THE SEGMENT RELATING TO DEVELOPMENT OF SOFTWAR E SERVICES, WHICH CAN BE SAID TO BE SIMILAR TO THE ASSESSEE, CAN ONLY BE CON SIDERED FOR THE PURPOSES OF COMPARABILITY ANALYSIS. THE SEGMENTAL DATA IN THIS REGARD IS NOT AVAILABLE AND THEREFORE IN OUR VIEW IT WOULD BE INAPPROPRIATE TO CONSIDER THE FINANCIAL RESULTS OF THE CONCERN AS A WHOLE FOR THE PURPOSES OF CARRY ING OUT COMPARABILITY ITA NO.122/PN/2011 A.Y. : 2006-07 ANALYSIS VIS--VIS THE TESTED TRANSACTIONS IN THE P RESENT CASE. THEREFORE, IN OUR CONSIDERED OPINION, THE SAID CONCERN IS LIABLE TO BE EXCLUDED FROM THE LIST OF COMPARABLES AND ACCORDINGLY ASSESSEE SUCCEEDS ON THIS ASPECT. 13. THIRDLY, APPELLANT HAS ASSAILED THE INCLUSION O F SIP TECHNOLOGIES AND EXPORT LTD. AS A COMPARABLE BY THE TPO ON THE GROUN D THAT THE FINANCIAL DATA OF THE SAID CONCERN WHICH HAS BEEN CONSIDERED DOES NOT CORRESPOND TO THE FINANCIAL YEAR OF THE ASSESSEE. IT IS POINTED OUT THAT THE FINANCIAL YEAR OF THE ASSESSEE UNDER CONSIDERATION IS FROM 01.04.2005 TO 31.03.2006 WHEREAS THE FINANCIAL YEAR OF SIP TECHNOLOGIES AND EXPORT LTD. ENDING ON 31 ST MARCH, 2006 IS COMPRISED OF A PERIOD OF 18 MONTHS STARTING FROM 01.10.2004. IN THIS CONTEXT, AN EXTRACT FROM THE ANNUAL FINANCIAL STATE MENTS OF THE SIP TECHNOLOGIES AND EXPORT LTD. FOR THE PERIOD ENDING ON 31.03.2006 HAS BEEN FURNISHED WHICH IS PLACED AT PAGE 106 OF THE PAPER BOOK. FACTUALLY SPEAKING, THE AFORESAID POSITION IS NOT DISPUTED BY THE REVEN UE. IN TERMS OF RULE 10B(4) OF THE RULES, THE DATA TO BE USED IN ANALYZING THE COMPARABILITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRAN SACTION SHALL BE THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNA TIONAL TRANSACTION HAS BEEN ENTERED INTO. IN THE PRESENT CASE, THE FINANCIAL D ATA OF SIP TECHNOLOGIES AND EXPORT LTD. ADOPTED BY THE TPO FOR THE PERIOD ENDED 31.03.2006 DOES NOT RELATE TO THE FINANCIAL YEAR IN WHICH THE INTERNATI ONAL TRANSACTION HAS BEEN CARRIED OUT BY THE ASSESSEE BECAUSE OF THE VARIATIO N IN THE FINANCIAL YEAR OF THE TWO CONCERNS. THE FINANCIAL YEAR OF SIP TECHNOLOGI ES AND EXPORT LTD. IS FROM 01.10.2004 TO 31.03.2006 WHEREAS THE FINANCIAL YEAR OF THE ASSESSEE IN QUESTION IS FROM 01.04.2005 TO 31.03.2006. ON THIS POINT, WE UPHOLD THE PLEA OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO EXCLUDE SIP TECHNOLOGIES AND EXPORT LTD. FROM THE LIST OF COMPARABLES. THUS , ON THIS ASPECT ASSESSEE SUCCEEDS. ITA NO.122/PN/2011 A.Y. : 2006-07 14. ANOTHER PLEA OF THE ASSESSEE IS AGAINST THE ACT ION OF THE TPO IN INCLUDING KALS INFORMATION SYSTEMS LTD. AS A COMPAR ABLE CONCERN. THE ASSESSEE HAS CONTENDED THAT THE SAID CONCERN IS FUN CTIONALLY ENGAGED IN A DIFFERENT ACTIVITY INASMUCH AS IT IS ENGAGED IN DEV ELOPMENT OF SOFTWARE PRODUCTS WHICH IS QUITE DISTINCT FROM THE SOFTWARE DEVELOPMENT SERVICES BEING PROVIDED BY THE ASSESSEE. AT THE TIME OF HEARING, IT HAS BEEN SUBMITTED THAT SIMILAR DISTINCTION HAS BEEN NOTICED BY THE TRIBUNA L IN THE CASE OF BINDVIEW INDIA (P.) LTD. (SUPRA) WITH RESPECT TO KALS INFORM ATION SYSTEMS LTD. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION BEFORE US. IT HAS BEEN POINTED OUT THAT BINDVIEW INDIA (P.) LTD. (SUPRA) IS A COMPANY WHICH IS ENGAGED IN SOFTWARE DEVELOPMENT ACTIVITIES, WHICH IS AKIN TO THE ACTIVI TIES BEING CARRIED OUT BY THE ASSESSEE FOR ITS ASSOCIATED ENTERPRISES. THEREFORE , THE SAID CONCERN I.E. KALS INFORMATION SYSTEMS LTD. IS LIABLE TO BE EXCLUDED F ROM THE FINAL SET OF COMPARABLES. THE LEARNED CIT-DR HAS NOT DISPUTED T HAT THE DECISION OF THE TRIBUNAL IN THE CASE OF BINDVIEW INDIA (P.) LTD. (S UPRA) COVERS THE ARGUMENT BEING SETUP BY THE ASSESSEE BEFORE US. 15. IN THIS CONTEXT, WE HAVE PERUSED THE DECISION O F THE BINDVIEW INDIA (P.) LTD. (SUPRA) WHICH ALSO IS A CONCERN ENGAGED IN REN DERING OF SOFTWARE DEVELOPMENT SERVICES TO ITS PARENT COMPANY ABROAD. IN THE CONTEXT OF BENCHMARKING THE SERVICES RENDERED BY BINDVIEW INDI A (P.) LTD. (SUPRA), WHICH IS SIMILAR TO THE SERVICES BEING RENDERED IN THE IN STANT CASE, THE TRIBUNAL OBSERVED THAT KALS INFORMATION SYSTEMS LTD. WAS NOT A FUNCTIONALLY COMPARABLE CONCERN. THE FOLLOWING DISCUSSION IN TH E ORDER OF THE BINDVIEW INDIA (P.) LTD. (SUPRA) IS RELEVANT :- 16. ANOTHER ISSUE RELATING TO SELECTION OF COMPARA BLE BY THE TPO IS REGARDING INCLUSION OF KALS INFORMATION SYSTEM LTD. THE ASSESSEE HAS OBJECTED TO ITS INCLUSION ON THE BASIS THAT FUNCTIO NALLY THE COMPANY IS NOT COMPARABLE. WITH REFERENCE TO PAGES 185-186 OF THE PAPER BOOK, IT IS EXPLAINED THAT THE SAID COMPANY IS ENGAGED IN DEVEL OPMENT OF SOFTWARE PRODUCTS AND SERVICES AND IS NOT COMPARABLE TO SOFT WARE DEVELOPMENT SERVICES PROVIDED BY THE ASSESSEE. THE APPELLANT H AS SUBMITTED AN EXTRACT ON PAGES 185-186 OF THE PAPER BOOK FROM THE WEBSITE OF THE COMPANY TO ITA NO.122/PN/2011 A.Y. : 2006-07 ESTABLISH THAT IT IS ENGAGED IN PROVIDING OF IT ENA BLED SERVICES AND THAT THE SAID COMPANY IS INTO DEVELOPMENT OF SOFTWARE PRODUC TS, ETC. ALL THESE ASPECTS HAVE NOT BEEN FACTUALLY REBUTTED AND, IN OUR VIEW, THE SAID CONCERN IS LIABLE TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES, AND THUS ON THIS ASPECT, ASSESSEE SUCCEEDS. 16. FOLLOWING THE AFORESAID DECISION, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE KALS INFORMATION SYSTEMS LTD. FROM THE FINA L SET OF COMPARABLES. THUS, ON THIS ASPECT ALSO ASSESSEE SUCCEEDS. 17. ANOTHER PLEA BY THE ASSESSEE IS WITH RESPECT TO THE EXCLUSION OF TRANSWORLD INFOTECH LTD. FROM THE FINAL LIST OF COM PARABLES. THE EXCLUSION OF THE SAID CONCERN HAS BEEN JUSTIFIED ON THE BASIS TH AT THE SAID CONCERN HAS A FINANCIAL YEAR ENDING DIFFERENT FROM THAT OF THE AS SESSEE. AT PAGE 17 OF THE PAPER BOOK, ASSESSEE HAS PLACED AN EXTRACT FROM A C OPY OF THE ANNUAL REPORT OF TRANSWORLD INFOTECH LTD. WHICH SHOWS THAT THE FI NANCIAL PERIOD IS ENDING ON 30 TH JUNE, 2006 WHICH CLEARLY DOES NOT CORRESPOND TO TH E FINANCIAL YEAR OF THE ASSESSEE WHICH IS ENDING ON 31.03.2006. FOR THE RE ASONS EXPLAINED BY US IN THE CONTEXT OF THE EXCLUSION OF SIP TECHNOLOGIES AN D EXPORT LTD. IN THE EARLIER PARAGRAPHS, HEREIN ALSO THE SAID CONCERN IS DIRECTE D TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES BECAUSE THE FINANCIAL YEAR OF THE SAID CONCERN IS DIFFERENT FROM THAT OF THE ASSESSEE. THUS, ON THIS PLEA ALSO ASSESSEE SUCCEEDS. 18. ANOTHER ISSUE RAISED BY THE APPELLANT IS WITH R ESPECT TO THE EXCLUSION OF SYNETAIROS TECHNOLOGIES LTD. FROM THE LIST OF COMPA RABLES. THE TPO AS WELL AS THE DRP HAVE INCLUDED THE SAID CONCERN IN THE FI NAL SET OF COMPARABLES ON THE GROUND THAT THE SAID CONCERN IS FUNCTIONALLY CO MPARABLE TO THE ASSESSEE AND THE MARGIN OF THE SAID CONCERN HAS BEEN TAKEN A S 32.69% (I.E. OP/OC). 19. THE PLEA OF THE ASSESSEE BEFORE US IS THAT THE SAID CONCERN IS ENGAGED IN FUNCTIONALLY DIFFERENT ACTIVITIES INASMUCH AS IT IS INVOLVED IN PROVIDING ITA NO.122/PN/2011 A.Y. : 2006-07 SOFTWARE PROFESSIONALS TO OTHER SOFTWARE COMPANIES. AT PAGE 107 OF THE PAPER BOOK A WEBSITE EXTRACT OF THE SAID CONCERN HAS BEEN FURNISHED TO SUPPORT THE SAID PLEA. SECOND REASON ADVANCED IS THAT THE ANNU AL FINANCIAL REPORT OF THE SAID CONCERN IS NOT AVAILABLE IN THE PUBLIC DOMAIN AND THEREFORE THE SAID CONCERN OUGHT TO BE EXCLUDED FROM THE LIST OF COMPA RABLES INASMUCH AS ON SIMILAR GROUND THE TPO/DRP HAD REJECTED CERTAIN OTH ER CONCERNS ALSO. IN THE ALTERNATIVE, IT IS SUBMITTED THAT IF THE SAID CONCE RN IS TO BE RETAINED AS A COMPARABLE, THE MARGIN SHOULD BE WORKED-OUT ON THE BASIS OF THE ANNUAL REPORT OF THE SAID CONCERN AVAILABLE FOR THE SUBSEQ UENT YEAR ENDING 31.03.2007, WHICH CONTAINS THE PREVIOUS YEARS FIGU RES I.E. FOR THE YEAR ENDING UNDER CONSIDERATION I.E. 31.03.2006. A COPY OF THE FINANCIAL REPORT OF THE SAID CONCERN FOR YEAR ENDING 31.03.2007 HAS BEEN PLACED IN THE PAPER BOOK AT PAGES 80-90. THE LEARNED COUNSEL POINTED OUT THAT IF THE MARGIN BASED ON THE PREVIOUS YEARS FIGURES APPEARING IN ANNUAL REPORT OF MARCH, 2007 IS TAKEN, IT WOULD BE 19.59% AS AGAINST THE MARGIN OF 32.69% ADO PTED BY THE TPO AS PER THE DATA AVAILABLE FROM THE PROWESS DATA BASE. 20. ON THIS ASPECT, THE LEARNED CIT-DR POINTED OUT THAT ASSESSEE HAD ITSELF INCLUDED THE SAID CONCERN AS A COMPARABLE CONCERN I N THE TRANSFER PRICING STUDY UNDERTAKEN BY IT AND THEREFORE THERE CANNOT B E NOW A STAND TAKEN BY THE ASSESSEE THAT THE SAID CONCERN IS EXCLUDIBLE ON THE BASIS OF FUNCTIONAL DISSIMILARITIES. IT HAS ALSO BEEN SUBMITTED THAT I N THE TRANSFER PRICING STUDY CARRIED OUT BY THE ASSESSEE, THE MARGIN OF THE SAID CONCERN HAS BEEN TAKEN AT 32.69% FOR THE PERIOD ENDING 2006, AS IS EVIDENT FR OM PAGE 101 OF THE PAPER BOOK FILED BY THE ASSESSEE. THEREFORE, IT IS CONTE NDED THAT THE AFORESAID OBJECTIONS RAISED BY THE ASSESSEE ARE UNTENABLE ESP ECIALLY WHEN THE TPO HAS MERELY PROCEEDED TO ACCEPT THE INCLUSION OF THE SAI D CONCERN AS A COMPARABLE AND ALSO ITS MARGINS FOR THE YEAR UNDER CONSIDERATI ON, AS REPORTED BY THE ASSESSEE IN ITS TRANSFER PRICING STUDY. ITA NO.122/PN/2011 A.Y. : 2006-07 21. HAVING CONSIDERED THE RIVAL SUBMISSIONS, IN OUR CONSIDERED OPINION THE PLEA SETUP BY THE ASSESSEE FOR EXCLUSION OF SYNETAI ROS TECHNOLOGIES LTD. FROM THE LIST OF COMPARABLES IS QUITE JUSTIFIED. NO DOU BT, ASSESSEE HAD INCLUDED THE SAID CONCERN AS A COMPARABLE IN ITS TRANSFER PRICIN G STUDY. SO HOWEVER, IN- PRINCIPLE ASSESSEE CANNOT BE DENIED AN OPPORTUNITY TO SEEK EXCLUSION OF THE SAID CONCERN FROM THE LIST OF COMPARABLES IF THE SA ME IS FOUNDED ON JUSTIFIABLE GROUNDS. IN THIS CASE, THE FUNDAMENTAL ISSUE SOUGH T TO BE BROUGHT BY THE ASSESSEE IS THAT THE SAID CONCERN IS ENGAGED IN NOT ONLY PROVIDING SOFTWARE DEVELOPMENT SERVICES BUT IS ALSO ENGAGED IN PROVIDI NG SOFTWARE PROFESSIONALS TO OTHER SOFTWARE COMPANIES, AN ACTIVITY WHICH IS N OT BEING CARRIED OUT BY THE ASSESSEE AT ALL. THE PLEA OF THE ASSESSEE IS BASED ON FACTUAL SUPPORT. THE ANNUAL FINANCIAL REPORT OF THE SAID CONCERN RELATAB LE TO THE YEAR UNDER CONSIDERATION IS ALSO NOT AVAILABLE IN PUBLIC DOMAI N, A FACT WHICH THE TPO AS WELL AS THE DRP WERE AWARE OF. IN ABSENCE OF ADEQU ATE CREDIBLE INFORMATION RELATING TO THE SAID CONCERN, IT WOULD BE INAPPROPR IATE TO CONSIDER IT AS A COMPARABLE CONCERN FOR THE PURPOSES OF CARRYING OUT THE COMPARABILITY ANALYSIS. THEREFORE, WE HOLD THAT M/S SYNETAIROS T ECHNOLOGIES LTD. BE EXCLUDED FROM THE FINAL SET OF COMPARABLES AND THUS ASSESSEE SUCCEEDS ON THIS ASPECT ALSO. 22. AT THE TIME OF HEARING, IT WAS STATED BY THE LE ARNED REPRESENTATIVE FOR THE APPELLANT THAT IF ASSESSEE WERE TO SUCCEED ON ITS PLEA FOR THE EXCLUSION OF (I) KALS INFORMATION SYSTEMS LTD.; (II) AVANI CINCO M TECHNOLOGIES LTD.; (III) COMPUCON SOFTWARE LTD.; (IV) TRANSWORLD INFOTECH LT D.; (V) SIP TECHNOLOGIES AND EXPORT LTD.; AND, (VI) SYNETAIROS TECHNOLOGIES LTD. FROM THE FINAL SET OF COMPARABLES, THEN THE VARIATION BETWEEN THE ARM'S LENGTH PRICE DETERMINED AND THE STATED VALUE OF THE INTERNATIONAL TRANSACTI ON WOULD FALL WITHIN THE +/- 5% AND THEREFORE IN TERMS OF SECTION 92C(2) OF THE ACT NO ADJUSTMENT WOULD BE REQUIRED TO BE MADE. SINCE WE HAVE UPHELD THE PLEA OF THE ASSESSEE FOR EXCLUSION OF (I) KALS INFORMATION SYSTEMS LTD.; (II ) AVANI CINCOM TECHNOLOGIES ITA NO.122/PN/2011 A.Y. : 2006-07 LTD.; (III) COMPUCON SOFTWARE LTD.; (IV) TRANSWORLD INFOTECH LTD.; (V) SIP TECHNOLOGIES AND EXPORT LTD.; AND, (VI) SYNETAIROS TECHNOLOGIES LTD. FROM THE FINAL SET OF COMPARABLES, THE OTHER GROUNDS OF APPE AL RAISED BY THE ASSESSEE IN ORDER TO ASSAIL THE ADDITION OF RS. 3,80,98,474/ - ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT ARE RENDERED ACADEMIC AND ARE NO T BEING ADJUDICATED FOR THE PRESENT. 23. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH SEPTEMBER, 2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) (G . S. PANNU) JUDICIAL MEMBER ACCOUNT ANT MEMBER PUNE, DATED : 30 TH SEPTEMBER, 2014. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE DRP, PUNE; 4) THE DR B BENCH, I.T.A.T., PUNE; 5) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE
