M/s ADC (India) Communications and Infotech Private Limited, Bangalore V. ITO, Bangalore

ITA 1230/BANG/2011

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7552 (ITAT-BANGALORE)
• Duration Of Justice: 5 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 15-06-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 09-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEERA MALHOTRA CITII BENGALURU
• Keywords: Transfer pricing; International transaction
• Section: 234B; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBE IT(TP)A NO.1230/BANG/2011 ASSESSMENT YEAR : 2007-08 M/S. TE CONNECTIVITY GLOBAL SHARED SERVICES INDIA PVT. LTD., [FORMERLY ADC (INDIA) COMMUNICATIONS & INFOTECH PRIVATE LTD.] 59/2, BLOCK-B, GURUDAS HERITAGE 100 FEET RING ROAD, KADRENAHALLI, BANASHANKARI 2 ND STAGE, BANGALORE 560 070. PAN: AACCA 9228R VS. THE INCOME TAX OFFICER, WARD 11(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI DHANESH BAFNA, CA RESPONDENT BY : MS. NEERA MALHOTRA, CIT-II(DR)(ITAT), BENGALURU DATE OF HEARING : 20.09.2017 DATE OF PRONOUNCEMENT : 27.09.2017 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINS T THE ASSESSMENT ORDER PASSED CONSEQUENT TO THE DIRECTIONS OF THE DR P. DURING THE PENDENCY OF THE APPEAL, THE ASSESSEE HAS FILED REVI SED GROUNDS OF APPEAL WITH THE SUBMISSION THAT THE SAME MAY BE TAKEN ON R ECORD IN PLACE OF THE ORIGINAL GROUNDS. ACCORDINGLY, REVISED GROUNDS ARE TAKEN ON RECORD AND IT IT(TP)A NO.1230/BANG/2011 PAGE 2 OF 8 REPLACES THE ORIGINAL GROUNDS. THE REVISED GROUNDS ARE REPRODUCED HEREUNDER FOR THE SAKE OF REFERENCE:- BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, TE CONNECTIVITY GLOBAL SHARED SERVICES INDIA PRIVATE L IMITED (HEREINAFTER REFERRED TO AS 'APPELLANT') RESPECTFULLY CRAVES LEA VE TO PREFER AN APPEAL AGAINST THE ORDER PASSED BY INCOME-TAX OFFICER, WAR D - 11(1) (`A0') DATED SEPTEMBER 30, 2011 IN PURSUANCE OF THE DIRECTIONS ISSUED BY DISPUTE RESOLUTION PANEL (`DRP'), BANGALORE DATED S EPTEMBER 05, 2011 UNDER SECTION 253 OF THE INCOME-TAX ACT, 1961 (ACT' ) ON THE FOLLOWING GROUNDS: THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, 1. THAT THE ORDER OF THE LEARNED INCOME TAX OFFICER, W ARD 11(1), BANGALORE (`ASSESSING OFFICER' OR `AO') TO THE EXTENT PREJUDI CIAL TO THE APPELLANT IS BAD IN LAW AND LIABLE TO BE QUASHED. [CORRESPONDING TO GROUND 1] 2. THAT THE APPELLANT CRAVES LEAVE TO ADD TO AND/OR TO ALTER, AMEND, RESCIND, MODIFY THE GROUNDS HEREIN BELOW OR PRODUCE FURTHER DOCUMENTS BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. [CORRESPONDING TO GROUND 2] GROUNDS OF APPEAL RELATING TO TRANSFER PRICING MATT ERS 3. THAT THE LEARNED AO AND THE LEARNED DISPUTE RESOLUT ION PANEL (PANEL) ERRED IN UPHOLDING THE REJECTION OF TRANSFER PRICIN G (TP) DOCUMENTATION BY THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX ( TRANSFER PRICING) IV, BANGALORE (`TRANSFER PRICING OFFICER' OR 'TPO '). [CORRESPONDING TO GROUND 3] 4. THAT THE LEARNED AO AND THE LEARNED PANEL ERRED BOT H IN FACTS AND LAW IN CONFIRMING THE ACTION OF THE LEARNED TPO OF MAKING AN ADJUSTMENT TO THE TRANSFER PRICE OF THE APPELLANT BY INR 11,520,701 I N RESPECT OF CONTRACT SOFTWARE DEVELOPMENT SERVICES AND BY INR 10,368,503 IN RESPECT OF SHARED SERVICES, HOLDING THAT THE INTERNATIONAL TRA NSACTIONS DO NOT SATISFY THE ARM'S LENGTH PRINCIPLE ENVISAGED UNDER THE INCO ME TAX ACT, 1961 (THE 'ACT') [CORRESPONDING TO GROUND 4] 4.1 UPHOLDING THE REJECTION OF COMPARABILITY ANALYS IS OF THE APPELLANT IN THE TP DOCUMENTATION AND IN SUBMISSIONS PROVIDED DURING THE ASSESSMENT PROCEEDINGS; CONFIRMING THE COMPARABILIT Y ANALYSIS AS ADOPTED BY THE LEARNED TPO IN THE TP ORDER AND THER EBY, CONFIRMING THE ACCEPTANCE OF THE FOLLOWING COMPARAB LE COMPANIES INTRODUCED BY THE LEARNED TPO IN THE TP ORDER NAMEL Y: IT(TP)A NO.1230/BANG/2011 PAGE 3 OF 8 INFORMATION TECHNOLOGY SERVICES SEGMENT: AVANI CIMCON TECHNOLOGIES LIMITED CELESTIAL LABS LIMITED FLEXTRONICS SOFTWARE SYSTEMS LIMITED INFOSYS TECHNOLOGIES LIMITED ISHIR INFOTECH LIMITED KALS INFORMATION SYSTEMS LIMITED LUCID SOFTWARE LIMITED R SYSTEMS INTERNATIONAL LIMITED TATA ELXSI LIMITED WIPRO LIMITED MEGASOFT LIMITED ACCEL TRANSMATIC LIMITED E-ZEST LIMITED PERSISTENT SYSTEMS LIMITED INFORMATION TECHNOLOGY ENABLED SERVICES SEGMENT: ACCENTIA TECHNOLOGIES LIMITED ECLERX SERVICES LIMITED MOLD-TEK TECHNOLOGIES LIMITED VISHAL INFORMATION TECHNOLOGIES LIMITED ACCURATE DATA CONVERTERS PRIVATE LIMITED BODHTREE CONSULTING LIMITED CALIBER POINT BUSINESS SOLUTIONS LIMITED HCL COMNET SYSTEMS AND SERVICES LIMITED INFORMED TECHNOLOGIES INDIA LIMITED WIPRO LIMITED INFOSYS BPO LIMITED [CORRESPONDING TO GROUND 4.1] 4.2 UPHOLDING THE ACT OF THE LEARNED TPO OF COLLEC TING INFORMATION OF THE COMPANIES BY EXERCISING POWER GRANTED TO HIM UN DER SECTION 133(6) OF THE ACT. [CORRESPONDING TO GROUND 4.2] 4.3 DISREGARDING APPLICATION OF MULTIPLE YEAR/ PRIO R YEAR DATA AS USED BY THE APPELLANT IN THE TP DOCUMENTATION AND HOLDING THAT CURRENT YEAR (I.E. F INANCIAL YEAR 2006-07) DATA FOR COMPARABLE COMPANIES SHOULD BE US ED. [CORRESPONDING TO GROUND 4.3] 4.4 IGNORING THE LIMITED RISK NATURE OF THE SERVICE S PROVIDED BY THE APPELLANT AS DETAILED IN THE TP DOCUMENTATION AND I N UPHOLDING THE CONCLUSION OF THE LEARNED TPO THAT NO ADJUSTMEN T ON ACCOUNT OF RISK DIFFERENTIAL IS REQUIRED WHILE DETE RMINING THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION S OF THE APPELLANT, BUT FOR AN ADJUSTMENT TOWARDS DIFFERENCE S IN THE IT(TP)A NO.1230/BANG/2011 PAGE 4 OF 8 WORKING CAPITAL POSITION BETWEEN THE APPELLANT AND THE ENTREPRENEURIAL COMPARABLE COMPANIES. [CORRESPONDING TO GROUND 4.4] 5 THE LEARNED AO AND THE LEARNED PANEL ERRED IN NO T PROVING THE BENEFIT OF LOWER RANGE OF +/-5% IN DETERMINATION OF ARM'S LENGTH PRICE. [CORRESPONDING TO GROUND 5] 6 THAT THE LEARNED AO AND THE LEARNED PANEL ERRED IN DISREGARDING THE JUDICIAL PRONOUNCEMENT IN INDIA IN UNDERTAKING TRAN SFER PRICING ADJUSTMENT. [CORRESPONDING TO GROUND 6] OTHER THAN TRANSFER PRICING MATTERS ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW: 7. A) THAT THE LEARNED ASSESSING OFFICER ERRED IN DISALLOWING SOFTWARE EXPENSES AMOUNTING TO INR 1,318,733 ON THE GROUND T HAT TAX WAS NOT DEDUCTED AT SOURCE ON PAYMENT OF THE SAME. [CORRESPONDING TO GROUND 7(A)] B) WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED ASSE SSING OFFICER ERRED IN ADDING THE DISALLOWANCES MADE UNDER SECTIO N 40A(I) AGAINST THE TAXABLE INCOME DETERMINED AFTER ALLOWIN G DEDUCTION UNDER SECTION10A, INSTEAD OF ADDING IT TO PROFITS O F THE BUSINESS FOR COMPUTING DEDUCTION UNDER SECTION 10A. [CORRESPONDING TO GROUND 7(B)] 8. A) THAT THE LEARNED ASSESSING OFFICER ER RED IN TAXING 'OTHER INCOME' OF INR 2,931,651 TWICE, ONCE AS 'PROFITS FR OM BUSINESS' AND AGAIN AS 'INCOME FROM OTHER SOURCES'. [CORRESPONDING TO GROUND 8(A)] B) THAT THE LEARNED ASSESSING OFFICER ERRED IN CLASSIFYING INTEREST EARNED FROM FIXED DEPOSITS AMOUNTING TO RS 43,538 A ND INTEREST EARNED FROM LOANS PROVIDED TO EMPLOYEES AMOUNTING T O RS 35,588 AS 'INCOME FROM OTHER SOURCES' AND NOT 'PROFITS AND GAINS FROM BUSINESS OR PROFESSION', THEREBY NOT ALLOWING THE D EDUCTION UNDER SECTION 10A ON SUCH INCOME. [CORRESPONDING TO GROUND 8(B)] C) THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN NOT INCLUDING SUCH INTEREST INCOME IN PROFITS DERIVED FROM THE EXPORT ORIENTED UNDERTAKING FOR THE PURPOSE OF COMPUTING THE DEDUCT ION UNDER SECTION 10A(1) READ WITH SECTION 10(A)(4) OF THE AC T. [CORRESPONDING TO GROUND O8(C)] D) THAT THE LEARNED ASSESSING OFFICER ERRED IN CLAS SIFYING AND TAXING THE PROFITS EARNED ON SALE OF DEPRECIABLE ASSETS, AMOUN TING TO RS 2,852,525, UNDER THE HEAD 'INCOME FROM OTHER SOURCE S'. [CORRESPONDING TO GROUND 08(D)] IT(TP)A NO.1230/BANG/2011 PAGE 5 OF 8 9. THAT THE LEARNED ASSESSING OFFICER ERRED IN NOT ALLOWING DEDUCTION UNDER SECTION 10A OF THE ACT ON THE ENTIRE PROFIT O F THE UNDERTAKING REGISTERED WITH THE SOFTWARE TECHNOLOGY PARK OF IND IA. [CORRESPONDING TO GROUND O9] 10. THAT THE LEARNED ASSESSING OFFICER ERRED IN CON SIDERING THE PROFIT OF THE UNDERTAKING FOR THE PURPOSE OF COMPUTING THE DEDUCT ION UNDER SECTION 10A AT RS 18,556,415 WITHOUT CONSIDERING ADJUSTMENT S MADE IN THE RETURN OF INCOME AS PER THE PROVISIONS OF THE ACT. [CORRESPONDING TO GROUND 10] 11. A) THAT THE LEARNED ASSESSING OFFICER ERRED I N TREATING THE LEASED LINE CHARGES OF RS 7,85,369 (BEING 100% OF THE LEAS ED LINE CHARGES INCURRED) AS ATTRIBUTABLE TO DELIVERY OF SO FTWARE OUTSIDE INDIA AND REDUCING THE SAME FROM 'EXPORT TURNOVER' WHILE COMPUTING THE DEDUCTION UNDER SECTION 10A. [CORRESPONDING TO GROUND 11(A)] B) WITHOUT PREJUDICE TO THE ABOVE, HAVING REDUCED THE LEASED LINE CHARGES FROM 'EXPORT TURNOVER', THE LEARNED ASSESSI NG OFFICER ERRED IN NOT REDUCING THE SAME FROM 'TOTAL TURNOVER AS WE LL. [CORRESPONDING TO GROUND 11(B)] C) THAT THE LEARNED ASSESSING OFFICER ERRED IN NOT APP LYING THE PRINCIPLES OF SECTION 8OHHE TO SECTION 10A. [CORRESPONDING TO GROUND 11(C)] D) THAT THE LEARNED ASSESSING OFFICER ERRED IN NOT FOL LOWING THE VARIOUS JUDICIAL PRECEDENTS IN THIS REGARD. [CORRESPONDING TO GROUND 11(D)] 12. THAT THE LEARNED ASSESSING OFFICER ERRED IN LE VYING AND COMPUTING INTEREST UNDER SECTION 234B AT RS 4,758,222. [CORRESPONDING TO GROUND 12] 13. THAT THE LEARNED ASSESSING OFFICER ERRED IN LEV YING INTEREST UNDER SECTION 234D AT RS 3,65O. [CORRESPONDING TO GROUND 13] THE APPELLANT SUBMITS THAT EACH OF THE ABOVE GROUND S IS INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, VA RY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF _APPEAL AT ANY TIME BEF ORE OR AT THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE HON'BLE TRIBUNAL TO DECIDE ON THE APPEAL IN ACCORDANCE WITH THE LAW. 2. THE ASSESSEE HAS ALSO MOVED AN APPLICATION FOR ADMISSION OF ADDITIONAL GROUNDS WHICH ARE REPRODUCED HEREUNDER:- IT(TP)A NO.1230/BANG/2011 PAGE 6 OF 8 4.5 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE TRANSFER PRICING OFFICER ERRED IN INTRODUC ING HELIOS & MATHESON INFORMATION TECHNOLOGY LIMITED AND THIRDWA RE SOLUTIONS LIMITED IN ITS COMPARABILITY ANALYSIS WHI CH ARE FUNCTIONALLY DISSIMILAR APPELLANT IN RESPECT OF ITS PROVISION OF CONTRACT SOFTWARE DEVELOPMENT SERVICES (IT). 4.6 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE TPO ERRED IN INTRODUCING ISERVICES INDIA P RIVATE LIMITED IN ITS COMPARABILITY ANALYSIS WHICH IS FUNCTIONALLY DISSIMILAR TO THE APPELLANT IN RESPECT OF ITS PROVISION OF SHARED SER VICES (ITES). 4.7 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE TPO ERRED IN INTRODUCING MITON CORP LIMITE D IN ITS COMPARABILITY ANALYSIS WITHOUT CONSIDERING THE PECU LIAR FACTS ABOUT THE COMPANY WHICH MAKE IT UNFIT TO BE HELD AS A GOOD COMPARABLE FOR BENCHMARKING PROVISION OF SHARED SER VICES (ITES). IT IS PRAYED THAT THE ABOVE COMPANIES BE EXCLUDED F ROM THE SET OF COMPARABLES CONSIDERED BY THE TPO FOR COMPARABILITY ANALYSIS. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL AND TO SUBMIT SUCH STATEMENTS, DOCUMENTS AND PAPERS AS MAY BE CONSIDERED NECESSARY EITHER AT OR BEFORE THE APPEAL HEARING. 3. DURING THE COURSE OF HEARING, THE LD. COUNSEL F OR THE ASSESSEE HAS INVITED OUR ATTENTION THAT THOUGH THE DRP HAS REPRO DUCED THE ASSESSEES CONTENTIONS AND TPOS FINDING WITH REGARD TO EXCLUS ION/INCLUSION OF COMPARABLES, BUT THEY THEMSELVES HAVE NOT EXAMINED THE ISSUE IN THE LIGHT OF ASSESSEES CONTENTIONS. ONLY IN ONE PARA THEY H AVE ADJUDICATED THE ISSUE OF EXCLUSION/INCLUSION OF COMPARABLES AND FIN ALLY CONCLUDED THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE TPO. IT(TP)A NO.1230/BANG/2011 PAGE 7 OF 8 4. DURING THE COURSE OF HEARING, BOTH THE PARTIES H AVE AGREED THAT SINCE THE DRP HAS NOT ADJUDICATED THE CONTENTIONS O F THE ASSESSEE BY PASSING A REASONED ORDER, THE MATTER SHOULD BE REST ORED BACK TO THEIR FILE WITH A DIRECTION TO REAJDUDICATE THE CONTENTIONS OF THE ASSESSEE WITH REGARD TO EXCLUSION/INCLUSION OF COMPARABLES BY APPLYING D IFFERENT FILTERS. THE LD. COUNSEL FOR THE ASSESSEE, HOWEVER, SUBMITTED THAT S INCE THE ASSESSEE HAS ALSO RAISED ADDITIONAL GROUNDS OF APPEAL BEFORE THE TRIBUNAL, THE SAME SHOULD ALSO BE CONSIDERED BY THE DRP WHILE ADJUDICA TING THE ISSUE OF TRANSFER PRICING. 5. HAVING CAREFULLY EXAMINED THE ORDER OF THE DRP A ND THE TPO, WE FIND THAT THE DRP HAS NOT APPLIED ITS MIND TO THE C ONTENTIONS OF THE ASSESSEE AND FINDINGS OF THE TPO. IT HAS SUMMARILY REJECTED THE CONTENTIONS OF THE ASSESSEE AND APPROVED THE ACTION OF THE TPO BY PASSING A CRYPTIC ORDER, WHEREAS THE DRP IS SUPPOSE D TO PASS A REASONED ORDER ANALYZING THE CONTENTIONS OF THE ASSESSEE IN THE LIGHT OF TPOS ORDER. SINCE THE DRP HAS NOT PASSED A REASONED ORDER ADJUD ICATING THE CONTENTIONS OF THE ASSESSEE, WE SET ASIDE THE ORDER OF THE DRP AND RESTORE THE MATTER BACK TO THEIR FILE WITH A DIRECTION TO R EADJUDICATE THE ISSUE OF TRANSFER PRICING DETERMINING THE ALP FOR INTERNATIO NAL TRANSACTIONS IN THE LIGHT OF ASSESSEES CONTENTIONS FOR EXCLUSION/INCLU SION OF THE COMPARABLES. SINCE THE ASSESSEE HAS ALSO FILED ADDITIONAL GROUND S OF APPEAL AND THE ENTIRE ISSUE IS RESTORED TO THE DRP, THE DRP MAY AL SO CONSIDER THE ADDITIONAL GROUNDS OF APPEAL RAISED BEFORE THE TRIB UNAL WHILE ADJUDICATING IT(TP)A NO.1230/BANG/2011 PAGE 8 OF 8 THE ISSUE OF TRANSFER PRICING. ACCORDINGLY, THE OR DER OF THE DRP IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF DRP TO RE ADJUDICATE THE ISSUES AFRESH IN THE TERMS INDICATED ABOVE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF SEPTEMBER, 2017. SD/- SD/- ( A.K. GARODIA ) ( SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 27 TH SEPTEMBER, 2017. / D ESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.