PROGRESS SOFTWARE SOLUTIONS (INDIA ) P. LTD, HYDERABAD V. ITO 13(1)(4), MUMBAI

ITA 1288/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3739 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2011-2012
• Appeal Filed On: 11-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAYANT KUMAR
• Assessee Lawyers: MAHAVEER C JAIN
• Keywords: Transfer pricing; Opportunity of being heard; International transaction
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE S/ SHRI B.R.BASKARAN (AM) & AMARJIT SINGH (JM) I. ( T P) .A. NO. 1288 /MUM /20 1 6 (ASSESSMENT YEAR 20 11 - 12 ) PROGRESS SOFTWARE SOLUTION (INDIA) PRIVATE LIMITED C/O. PROGRESS SOFTWARE DEVELOPMENT PVT . LTD. 4 TH FLOOR, NO.18, 1 LABS CENTRE, 8, SOFTWARE UNIT LAYOUT, MADHAPUR HYDERABAD - 500 081. PAN : AAACT7450Q VS. ITO 13(1)(4) ROOM NO. 216 2 ND FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI MAHAVEER C. JAIN DEPARTMENT BY SHRI JAYANT KUMAR & SHRI KIRAN UNAVEKAR DATE OF HEARING 2 . 8 . 201 8 DATE OF PRONOUNCEMENT 10 . 8 . 201 8 O R D E R PER B.R. BASKARAN (A M) : - THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER PASSED BY ASSESSING OFFICE R U/S. 143(3) READ WITH SECTION 144C(13) OF THE ACT PURSUANT TO THE DIRECTION ISSUED BY LEARNED DRP. THE A SSESSEE IS AGGRIEVED BY THE DECISION OF THE TAX AUTHORITIES IN REJECTING SEGMENTAL PROFIT AND LOSS ACCOUNT AND MAKING TRANSFER PRICING ADJUSTMENT AT ENTITY LEVEL. THE ASSESSEE HAS ALSO RAISED GROUND S WITH REGARD TO ADDITION MA DE ON THE BASIS OF FORM NO. 26AS STATEMENT AND IN NOT GRANTING SETTING OFF OF BROUGHT FORWARD LOSSES. 2. THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED THAT THE ASSESSE E IS A SUBSIDIARY OF PROGRESS SOFTWARE CORPORATION, USA. IT HAS GOT TWO SEGMENTS NAMELY INFORMATION TECHNOLOGY SEGMENT AND TRADING OF S OFTWARE SEGMENT. HE FURTHER SUBMITTED THAT BOTH SEGMENTS ARE LOCATED AT DIFFERENT PLACE S, I.E. THE I NFORMATION TECHNOLOGY DIVISION IS LOCATED IN MUMBAI AND THE PROGRESS SOFTWARE SOLUTION (INDIA) PRIVATE LIMITED 2 T RADING SE GMENT IS LOCATED IN CHENNAI. THE LEARNED AR SUBMITTED THAT THE ASSESSEE HAS FURNISHED SEGMENTAL PROFIT AND LOSS ACCOUNT AND BENCHMARK ED ITS INTERNATIONAL TRANSACTIONS WITH ITS AE ACCORDINGLY. HOWEVER, THE TP O REJECTED SEGMENTAL PROFIT AND LOSS ACCOUNT ; CONSIDERED MARGIN AT ENTITY LEVEL AND PROPOSED ADJUSTMENT OF ` 420.72 LAKHS. THE SAME WAS CONFIRMED BY LEARNED DRP. 3. THE LEARNED AR SUBMITTED THAT THE ASSESSEE HAS FURNISHED AUDIT CERTIFICATE WITH REGARD TO SEGMENTAL PROFIT AND LOSS ACCOUNT AND FURTHER THE OPERATIONS CARRIED OUT IN BOTH SEGMENTS ARE TOTALLY DIFFERENT. ACCORDINGLY, THE LEARNED AR SUBMITTED THAT THERE IS NO JUSTIFICATION IN REJECTING SEGMENTAL RESULTS. 4. WE HEARD LD D.R. WHEN IT WAS POINTED THAT THERE IS MERIT IN THE CONTENTIONS OF THE ASSESSEE FOR CONSIDERING SEGMENTAL RESULTS, SINCE BOTH THE SEGMENTS ARE DEALING IN DIFFERENT ACTIVITIES, THE LEARNED DR SUBMITTED THAT THE ASSESSEE HAS INCURRED CERTAIN COMMON EXPENSES AND ALLOCATION OF THE SA ME BETWEEN TWO SEGMENTS WAS NOT PROPERLY EXPLAINED. 5. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. WE NOTICED THAT THE ASSESSEE IS HAVING TWO SEGMENTS AND BOTH SEGMENTS ARE LOCATED IN GEOGRAPHICALLY TWO DIFFERENT LOCATIONS , I.E., INFORMATION TECHNOL OGY SEGMENT LOCATED IN MUMBAI AND IS SAID TO BE ENGAGED IN THE SOFTWARE DEVELOPMENT ACTIVITY. THE T RADING SEGMENT IS LOCATED IN CHENNAI AND IS SAID TO BE ENGAGED IN RESALE OF SOFTWARE PRODUCTS OF ITS PARENT COMPANY. ADMITTEDLY, BOTH SEGMENTS ARE CARRYING ON TWO DIFFERENT ACTIVITIES. THE ASSESSEE ALSO CLAIMED TO HAVE FURNISHED SEGMENTAL PROFIT AND LOSS ACCOUNT. BEFORE US, THE ASSESSEE FURNISHED A COPY OF AUDIT CERTIFICATE ALSO. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE CLAIM OF THE ASSESSEE THAT, FOR THE PURPOSE OF DETERMINING ARMS LENGTH PRICE OF TRANSACTIONS, SEGMENTAL RESULTS SHOULD BE CONSIDERED. THE LD D.R RAISED AN ISSUE RELATING TO ALLOCATION OF COMMON EXPENSES , WHICH CAN ALWAYS BE EXAMINED BY THE TAX AUTHORITIES. ACC ORDINGLY, PROGRESS SOFTWARE SOLUTION (INDIA) PRIVATE LIMITED 3 WE SET ASIDE THE ORDER PASSED BY THE TAX AUTHORITIES AND RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER/TPO FOR DETERMINING ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS ENTERED WITH ASSOCIATED ENTERPRISES OF THE ASSESSEE BY CONSIDERI NG SEGMENTAL RESULTS FURNISHED BY THE ASSESSEE. 6. THE N EXT ISSUE RELATES TO ADDITION MADE ON THE BASIS OF 26AS STATEMENT. THE LEARNED AR SUBMITTED THAT THE ASSESSEE WOULD BE IN A POSITION TO OFFER EXPLANATION S IN THIS REGARD. ACCORDINGLY, WE ARE OF THE V IEW THAT THE ASSESSEE MAY BE GIVEN ONE MORE OPPORTUNITY TO EXPLAIN THIS ISSUE . ACCORDINGLY, WE RESTORE THIS ISSUE TO THE FILE OF ASSESSING OFFICER ON FOR EXAMINING IT AFRESH. 7. THE N EXT ISSUE RELATES TO CLAIM FOR SETTING OFF OF BROUGHT FORWARD LOSSES. T HIS ISSUE ALSO REQUIRES EXAMINATION AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINING THE CLAIM OF THE ASSESSEE IN ACCORDANCE WITH LAW . 8. NEEDLESS TO MENTION, THE ASSESSEE SHOUL D BE PROVIDED WITH ADEQUATE OPPORTUNITY OF BEING HEARD. 9 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER HAS BE E N PRONOUNCED IN THE COURT ON 10 . 8 .201 8 . SD/ - SD/ - (AMARJIT SINGH ) ( B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 10 / 8 / 20 1 8 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPOND ENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI PROGRESS SOFTWARE SOLUTION (INDIA) PRIVATE LIMITED 4 6. GUARD FILE. BY ORDER, //TRUE COPY// ( SENIOR PRIVATE SECRETARY ) PS ITAT, MUMBAI