M/s. Integreon (India) Pvt. Ltd., Mumbai V. DCIT, New Delhi

ITA 1277/DEL/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7565 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 03-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: NEERAJ SETH
• Keywords: Transfer pricing; International transaction; Question of law
• Section: 271(1)(c); 143(3); 92D; 234B

Judgement Text

, -1, IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-1, NEW DELHI , !#$%&'()*+,* BEFORE MS. SUSHMA CHOWLA, VP & SHRI PRASHANT MAHARI SHI, AM [THROUGH VIDEO CONFERENCING] - / ITA NO.1277/DEL/2017 . ( ( /ASSESSMENT YEAR 2012-13 INTEGREON (INDIA) PVT.LTD., 602, 6 TH FLOOR, IT BUILDING-3, NESCO IT PARK, NESCO COMPLEX, WESTERN EXPRESS HIGHWAY, GOREGAON (EAST), MUMBAI-400063. PAN-AAACCG7235J .......... /0 /APPELLANT VS THE DCIT, CIRCLE-10(2), NEW DELHI-110002. . #1/0 / RESPONDENT /023* / APPELLANT BY : SH. PERCY J.PARDIWALA, SR. ADV. & SH. NEERAJ SETH, AR #1/023* / RESPONDENT BY : SH. SURENDRA PAL, CIT DR 2%+ / DATE OF HEARING : 17.08.2020 45 2%+ / DATE OF PRONOUNCEMENT: 31.08.2020 *$ / ORDER PER SUSHMA CHOWLA,VP THE PRESENT APPEAL FILED BY ASSESSEE IS AGAINST O RDER OF ASSESSING OFFICER DATED 18.01.2017 RELATING TO ASSESSMENT YEA R 2012-13 AGAINST THE ORDER PASSED UNDER SECTION 143(3) R.W.S 144C(13) O F THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 2 ITA NO.1277/DEL/2017 ASSESSMENT YEAR 2012-13 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL:- 1.0. ADJUSTMENT/ADDITION OF RS. 23,600,763/- ON AC COUNT OF PROVISION OF BACK OFFICE SUPPORT SERVICES TO ASSOCI ATED ENTERPRISES ('AE') : 1.1 THE HON'BLE DISPUTE RESOLUTION PANEL ('DRP')I L D. ASSESSING OFFICER ('AO')/LD. TRANSFER PRICING OFFICER ('TPO') HAVE ER RED ON THE FACTS OF THE CASE AND IN LAW IN MAKING AN UPWARD ADJUSTMENT OF RS. 23 ,600,763/- TO THE TOTAL INCOME OF THE APPELLANT BY HOLDING THAT THE I NTERNATIONAL TRANSACTION RELATING TO BACK OFFICE SUPPORT SERVICES PROVIDED B Y THE APPELLANT TO ITS AE IS NOT AT ARM'S LENGTH. 1.2 THE HON'BLE DRPI LD. AOI LD. TPO ERRED IN FACT S OF THE CASE AND IN LAW IN DISREGARDING THE BENCHMARKING ANALYSIS AND C OMPARABLE COMPANIES SELECTED BY THE APPELLANT BASED ON THE CO NTEMPORANEOUS DATA IN THE TRANSFER PRICING STUDY REPORT MAINTAINED AS PER SECTION 92D OF THE INCOME TAX ACT, 1961 ('THE ACT') READ WITH RULE 10D OF THE INCOME-TAX RULES, 1962 ('THE RULES'). FURTHER, THE LD. TPO, IN THE APPELLANT'S OWN CASE, ACCEPTED THE FUNCTIONAL AND ECONOMIC ANALYSIS OF TH E APPELLANT. 1.3 THE HON'BLE DRPI LD. AOI LD. TPO ERRED IN FACT S OF THE CASE IN CHERRY PICKING COMPANIES HAVING HIGH OPERATING MARGINS WIT HOUT APPRECIATING THAT SUCH COMPANIES ARE FUNCTIONALLY DISSIMILAR TO THE APPELLANT. 1.4 THE LD. ASSESSING OFFICER/ LD. TPO ERRED IN US ING SEGMENTAL DATA FROM AN INAPPROPRIATE BUSINESS SEGMENT OF A COMPANY IN AN INCONSISTENT MANNER VIS-A-VIS THE PRIOR YEAR. FURTHER, THE LD. A O/ LD. TPO ERRED IN COMPUTATION OF OPERATING MARGINS OF COMPARABLE COMP ANIES WHICH WERE ACCEPTED BY THE LD. TPO IN HIS OWN ORDER. 1.5 THE HON'BLE DRP/LD. ASSESSING OFFICER/ LD. TPO ERRED IN FACTS OF THE CASE AND IN LAW BY NOT ALLOWING THE USE OF MULTIPLE YEAR DATA AS PRESCRIBED UNDER RULE 10B( 4) OF THE RULES READ WIT H THE OECD TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISE AND TAX ADMINISTRATIONS, FOR DETERMINING THE ARM'S LENGTH PRICE OF INTERNATI ONAL TRANSACTION OF THE APPELLANT. 2.0 GENERAL 2.1. THE LD. AO ERRED IN LEVYING INTEREST UNDER SEC TION 234B AND 234C OF THE ACT. 2.2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AN D IN LAW, THE LD. AO ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTI ON 271(1)(C) OF THE ACT. 2.3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEN D, SUBSTITUTE AND/OR MODIFY IN ANY MANNER WHATSOEVER THE FOREGOING GROUN DS OF APPEAL AT OR BEFORE THE HEARING OF THE APPEAL. 3 ITA NO.1277/DEL/2017 ASSESSMENT YEAR 2012-13 3. THE ISSUE IS RAISED AGAINST THE TRANSFER PRICING ADJUSTMENT MADE IN THE HANDS OF THE ASSESSEE. 4. BRIEFLY IN THE FACTS OF THE CASE THE ASSESSEE WA S ENGAGED IN THE BUSINESS OF PROVIDING BACK OFFICE SERVICES TO ITS AUTHORIZE D ENTERPRISES (IN SHORT AE). THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSAC TION WITH ITS AE. THE ASSESSING OFFICER MADE REFERENCE U/S 92CA(I) OF THE ACT TO DETERMINE THE ARMS LENGTH PRICE (IN SHORT ALP) OF THE INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE. THE ASSESSEE HAD SHOWN ITS MARGIN AT 17.11%. THE ASSESSEE HAD SELECTED SIX COMPANIES AS COMPARABLES IN ITS TP STUDY REPORT, WHOSE MEAN MARGIN WORKED OUT TO 13.63%. THE SAID COMPUT ATION OF THE MARGINS WAS ON MULTIPLE YEAR AVERAGE. HOWEVER, DURING THE TP PROCEEDINGS, THE ASSESSEE RE-COMPUTED THE MEAN MARGINS OF THE COMPAR ABLES USING CURRENT YEAR DATA, WHICH WORKED TO 17.4%. THE TPO ISSUED SHOW C AUSE NOTICE TO THE ASSESSEE AND IN THE FINAL ANALYSIS SELECTED 10 COMP ARABLES FOR BENCHMARKING THE INTERNATIONAL TRANSACTION OF THE ASSESSEE. THE MEAN MARGINS OF THE COMPARABLES WORKED OUT TO 26.05% AND CONSEQUENTLY, THE TPO PROPOSED AN UPWARD ADJUSTMENT OF RS.23,600,763/-. 5. THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP WH ICH IN TURN UPHELD THE TPO. THEREAFTER THE ASSESSING OFFICER PASSED CONSE QUENT ASSESSMENT ORDER, AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 6. THE LD.AR FOR THE ASSESSEE POINTED OUT THAT IN C ASE TWO CONCERNS WHICH ARE FINALLY SELECTED BY THE TPO ARE EXCLUDED FROM T HE LIST OF COMPARABLES, THEN THE MEAN MARGINS OF COMPARABLES WOULD BE WITHIN +/- 5% OF MARGIN SHOWN 4 ITA NO.1277/DEL/2017 ASSESSMENT YEAR 2012-13 BY THE ASSESSEE. IN THIS REGARD, HE POINTED OUT TH AT TWO CONCERNS WHICH NEED TO BE EXCLUDED ARE TCS E-SERVE LTD. AND INFOSYS BP O LTD. THE LD.AR FOR THE ASSESSEE FURTHER POINTED OUT THAT TCS E-SERVE LTD. WAS SELECTED IN THE PRECEDING YEAR ALSO AND THE TRIBUNAL VIDE ITS ORDER IN ITA NO.1173/DEL/2016 RELATING TO ASSESSMENT YEAR 2011-12 HAD EXCLUDED TH E SAID CONCERN BECAUSE OF BOTH BRAND VALUE AND HIGH TURNOVER OF THE SAID ENTI TY. THE LD.AR FOR THE ASSESSEE POINTED OUT THAT EVEN DURING THE YEAR UNDE R CONSIDERATION, THE TURNOVER OF THE ASSESSEE WAS RS.30.92 CRORES AND TH E TURNOVER OF TCS E-SERVE LTD. WAS RS.1578 CRORES. SIMILARLY, HE POINTED OUT THAT SIMILAR WAS THE CASE OF INFOSYS BPO LTD., AS THE SAID CONCERN ALSO HAD BRAN D VALUE AND HIGH TURNOVER. THE TOTAL TURNOVER OF INFOSYS BPO LTD. FOR THE YEA R WAS RS.1312 CRORES. THE LD.AR FOR THE ASSESSEE FURTHER POINTED OUT THAT ALL THE OTHER ISSUES RAISED WOULD BECOME ACADEMIC. 7. THE LD.DR FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS SUBSIDIARY OF INTEGREON MANAGED SOLUTIO N (MAURITIUS) LTD. WHICH HOLDS 99% SHARE OF THE ASSESSEE COMPANY. THE ASSES SEE PROVIDES INFORMATION TECHNOLOGY ENABLED SERVICES (IN SHORT ITES) AND I S MAINLY ENGAGED IN RESEARCH SUPPORT FOR A BROAD ARRAY OF BUSINESS CHAL LENGES, INCLUDING COMPETITIVE INTELLIGENCE, CUSTOMER EXPERIENCE AND B RANDING CUSTOMER ANALYTICS, INVESTMENT AND DUE DILIGENCE, MARKET ENTRY AND PROD UCT LAUNCH. DURING THE YEAR, THE ASSESSEE HAD PROVIDED SERVICES TO G RAIL RESEARCH LLC (G RAIL, USA). 5 ITA NO.1277/DEL/2017 ASSESSMENT YEAR 2012-13 THE ASSESSEE HAD SELECTED TRANSACTIONAL NET MARGIN METHOD AS THE MOST APPROPRIATE METHOD TO BENCHMARK ITS INTERNATIONAL T RANSACTION OF PROVIDING ITES SERVICES. THE MARGINS SHOWN BY THE ASSESSEE W ERE 17.11% WHICH WERE COMPARED WITH THE MEAN MARGINS OF THE COMPARABLES S ELECTED USING CURRENT YEAR DATA AT 17.4%. HOWEVER, THE TPO REJECTED SOME OF THE COMPARABLES AND ALSO MODIFIED THE FILTERS AND PROPOSED TRANSFER PRI CING ADJUSTMENT OF RS.23,600,763/-. THE SAID ADJUSTMENT WAS UPHELD BY THE DRP AND THE ASSESSING OFFICER PASSED FINAL ASSESSMENT ORDER. T HE LD.AR FOR THE ASSESSEE BEFORE US HAS POINTED OUT THAT THE LIMITED ISSUE WH ICH NEEDS TO BE ADJUDICATED IS THE FINAL SELECTION OF COMPARABLES BY THE ASSESS ING OFFICER/DRP/TPO. IT WAS SUGGESTED BY THE LD.AR FOR THE ASSESSEE THAT IN CAS E 02 CONCERNS I.E. TCS E- SERVE LTD. AND INFOSYS BPO LTD. ARE EXCLUDED FROM T HE FINAL LIST OF THE COMPARABLES, THEN THE MARGINS SHOWN BY THE ASSESSEE WOULD BE WITHIN +/-5% OF MEAN MARGINS OF COMPARABLES SHOWN BY THE ASSESSE E. 9. WE FIND THAT THE ISSUE OF EXCLUSION OF TCS E-SE RVE LTD. FROM THE FINAL LIST OF COMPARABLES ON THE GROUND OF THE SAID CONCERN HA VING BOTH BRAND VALUE AND HIGH TURNOVER WAS AGITATED BEFORE THE TRIBUNAL (SUPRA) IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2011-12. THE TRIBUNAL IN T URN RELIED ON THE RATIO LAID DOWN BY THE DELHI BENCH OF TRIBUNAL IN B.C. MANAGEM ENT SERVICES P.LTD. 83 TAXMANN.COM 346. THE RELEVANT FINDING OF THE SAID CASE ARE REPRODUCED BY THE TRIBUNAL IN PARA 14 AND ARE BEING REFERRED, BUT NOT BEING REPRODUCED FOR THE SAKE OF BREVITY. IT MAY FURTHER BE POINTED OUT TH AT AGAINST THE SAID ORDER IN 6 ITA NO.1277/DEL/2017 ASSESSMENT YEAR 2012-13 B.C. MANAGEMENT SERVICES P.LTD.(SUPRA), THE REVENUE FILED AN APPEAL BEFORE THE HONBLE HIGH COURT AND THE QUESTION OF LAW RAISED W AS AS UNDER:- 1. WHETHER THE EXCLUSION OF FOUR COMPARABLES I.E. E-CLERX PVT.LTD., M/S ICRA TECHNO ANALYTICS LTD., M//S. TCS E-SERVE LTD. AND M/S. ACCENTIA TECHNOLOGIES PVT.LTD., ARE SUSTAINABLE AND NOT ERRO NEOUS? 10. THE HONBLE JURISDICTIONAL HIGH COURT DISMISSED THE APPEAL OF THE REVENUE OBSERVING AS UNDER:- 'THE THIRD COMPARABLE THAT THE AO/TPO EXCLUDED IS T CS E-SERVE. THE ITAT OBSERVED THAT THOUGH THERE IS A CLOSE FUNCTIONAL SI MILARITY BETWEEN THAT ENTITY AND THE ASSESSEE, HOWEVER, THERE IS A CLOSE CONNECTION BETWEEN TCS E-SERVE AND TA T A CONSULTANCY SERVICE LTD. WHICH W AS HIGH BRAND VALUE; THAT DISTINGUISHED IT AND MARKED IT OUT FOR EXCLUSI ON. THE ITAT RECORDED THAT THE BRAND VALUE ASSOCIATED WITH TCS CONSULTANC Y REFLECTED IMPACTED TCS E-SERVE PROFITABILITY IN A VERY POSITIVE MANNER . THIS INFERENCE TOO IN THE OPINION OF COURT, CANNOT BE TERMED AS UNREASONA BLE. THE RATIONALE FOR EXCLUSION IS THEREFORE UPHELD.' 11. THE HONBLE HIGH COURT THUS WAS OF THE VIEW THA T WHERE TCS E-SERVE LTD. HAS HIGH BRAND VALUE THEN IT CANNOT BE SELECTED AS COMPARABLE WITH A CONCERN WHOSE BRAND VALUE IS LESS. THE LD.DR FOR THE REVEN UE STRESSED THAT THE GLOBAL ENTITY OF WHICH THE ASSESSEE IS THE SUBSIDIARY HAS HIGH BRAND VALUE. WE FIND NO MERIT IN THE STAND OF THE REVENUE IN THIS REGARD . EVEN ON THE SECOND ISSUE OF HIGH TURNOVER, THE SAID CONCERN I.E. TCS E-SERVE LTD. CANNOT BE SELECTED AS COMPARABLE. THE TOTAL TURNOVER OF THE ASSESSEE DUR ING THE YEAR IS RS.30.92 CRORES. ON THE OTHER HAND, THE TURNOVER OF THE TCS E-SERVE LTD. IS RS.1578 CRORES. ACCORDINGLY WE HOLD THAT THE TCS E-SERVE L TD. IS TO BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES. SIMILARLY, INFOSYS BPO LTD. WHICH HAS BOTH BRAND VALUE AND HIGH TURNOVER OF RS.1312 CRORES CANNOT BE SELECTED AS A CONCERN 7 ITA NO.1277/DEL/2017 ASSESSMENT YEAR 2012-13 COMPARABLE TO THE ASSESSEE WHOSE TOTAL TURNOVER IS ONLY RS.31 CRORES (APPROX.). ACCORDINGLY, WE HOLD SO. 12. IN VIEW OF THE OUR EXCLUDING THE TWO CONCERNS I .E. TCS E-SERVE LTD. AND INFOSYS BPO LTD. FROM THE FINAL LIST OF COMPARABLES AND AS PER THE SUBMISSIONS OF THE ASSESSEE, NO OTHER GROUNDS OF APPEAL NEEDS T O BE ADJUDICATED AS THE MARGINS SHOWN BY THE ASSESSEE WOULD BE WITHIN +/-5% IN THE COMPARABLES, THUS OTHER GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE NOT TAKEN UP FOR ADJUDICATION. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST, 2020. SD/- SD/- (PRASHANT MAHARISHI) (SUSHMA CHOWLA) *+, / ACCOUNTANT MEMBER / VICE PRESIDENT / DATED : 31 ST AUGUST, 2020 *AMIT KUMAR*. *$2#.%6'7*'%8 COPY OF THE ORDER IS FORWARDED TO : 1. /0 / THE APPELLANT 2. #1/0 / THE RESPONDENT 3. 9% : ; / THE CIT(A) 4. < 9% / THE PR. CIT 5. 6. '=>#.%. ) ) / DR, ITAT, DELHI >?(@8 GUARD FILE. *$ / BY ORDER , 1'%#.% // TRUE COPY // &AB,C , ) ASSISTANT REGISTRAR, ITAT, DELHI