M/s Moog India Technology Center Pvt. Ltd., Bangalore V. ITO, Bangalore

ITA 129/BANG/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7380 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 13-07-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 05-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Transfer pricing; International transaction

Judgement Text

IT(TP)A.129/BANG/2016 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'C', BENGALURU BEFORE SHRI. JASON P. BOAZ, ACCOUNTANT MEMBER AND SHRI. LALIET KUMAR, JUDICIAL MEMBER I.TTP)A NO.129/BANG/2016 (ASSESSMENT YEAR : 2011-12) M/S. MOOG INDIA TECHNOLOGY CENTER P. LTD, NO.1, 2 & 3, HOSUR MAIN ROAD, ELECTRONIC CITY, BENGALURU 560 100 .. APPELLANT PAN : AAGCM3566Q V. INCOME-TAX OFFICER, WARD 4(1)(4), BENGALURU .. RESPONDENT ASSESSEE BY : SHRI. K. R. VASUDEVAN, ADVOCATE REVENUE BY : SHRI. R. N. PARBAT, CIT-III HEARD ON : 04.09.2017 PRONOUNCED ON :19.10.2017 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST AN ORDER OF THE ITO, WARD -4(1)(4), BENGALURU, PASSED U/S.143(3) R. W.S. 144C(13) OF THE ACT, IN PURSUANCE TO THE DIRECTIONS OF THE DRP, FOR THE ASSESSMENT YEAR 2011-12, ON THE GROUNDS WHICH ARE REPRODUCED H EREIN BELOW : IT(TP)A.129/BANG/2016 PAGE - 2 IT(TP)A.129/BANG/2016 PAGE - 3 03. BRIEF FACTS ARE THE ASSESSEE WAS INCORPORATED O N 14 . 02.2010 UNDER THE COMPANIES ACT, 1956 AND IS A SUBSIDIARY O F MOOG IT(TP)A.129/BANG/2016 PAGE - 4 SINGAPORE P. LTD, SINGAPORE. THE ASSESSEE COMMENCE D ITS OPERATIONS ON 01.04.2010 AND IS REGISTERED UNDER THE STP OF IN DIA. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND SUPPORT SERVICES AND HAS ENTERED INTO A MASTER SERVICE AGRE EMENT WITH MOOG INC., USA, THE ULTIMATE HOLDING COMPANY TO RENDER T HESE SERVICES. DURING THE FY 2010-11, THE ASSESSEE HAS ENTERED INT O THE FOLLOWING INTERNATIONAL TRANSACTIONS WITH THE AE. INTERNATIONAL TRANSACTIONS AMOUNT (RS.) COMPONENTS (PROTOTYPE FOR TESTING 4,32,595 PURCHASE OF CAPITAL GOODS 49,01,424 SOFTWARE DEVELOPMENT SERVICES 36,85,37,395 UNSECURED LOAN 7,22,874 IT & HR COST ALLOCATION 3,09,10,861 TRAVEL EXPENSES 37,07,789 THE ASSESSEE HAS SHOWN THE FOLLOWING OPERATING INCO ME, OPERATIVE EXPENDITURE AND OPERATING PROFIT FOR THE AY 2011-12 : PARTICULARS AMOUNT (RS.) OPERATING INCOME 36,85,37,395 OPERATING EXPENDITURE 32,13,60,433 OPERATING PROFIT 4,71,76,962 OP / OC 14.68% OP/OR 12.80% 05. DURING THE FY 2010-11 THE ASSESSEE HAS ENTERED INTO THE FOLLOWING INTERNATIONAL TRANSACTIONS WITH THE AES : IT(TP)A.129/BANG/2016 PAGE - 5 06. IT MAY BE PERTINENT TO MENTION HERE THAT ALL TH E INTERNATIONAL TRANSACTIONS EXCEPT SOFTWARE DEVELOPMENT SERVICES W ERE ENTERED INTO BY THE ASSESSEE AND ADJUSTMENTS WERE MADE FOR AN AM OUNT OF RS.27,346,522/-. 07. THE ASSESSEE HAS SELECTED THE FOLLOWING COMPARA BLES AS PER ITS TP STUDY : IT(TP)A.129/BANG/2016 PAGE - 6 08. HOWEVER, THE TPO WAS NOT SATISFIED WITH THE TP STUDY OF THE ASSESSEE AND THEREFORE THE TPO ISSUED A SHOW CAUSE NOTICE REJECTING THE TP STUDY OF THE ASSESSEE. IT WAS INDICATED BY THE TPO TO APPLY THE FOLLOWING FILTERS : 09. BASED ON THE FILTERS APPLIED BY THE TPO, THE TP O HAS SELECTED THE FOLLOWING COMPARABLES. THE TABLE BELOW SHOWS T HE COMPARABLES SELECTED BY THE TPO AS WELL AS THE UNADJUSTED MARGI N : IT(TP)A.129/BANG/2016 PAGE - 7 11. THE TPO AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE HAD PASSED A DETAILED ORDER COMPUTING THE ALP OF THE AS SESSEE AND THEREBY MADE AN ADJUSTMENT OF RS.27,346.522/-. THE TABLE DEPICTING THE WORKING OF ALP AS PER THE TP ORDER IS AS UNDER : 12. THE ASSESSEE CHALLENGED THE ORDER OF THE TPO IN THE PROCEEDINGS BEFORE THE DRP. DRP VIDE THE IMPUGNED ORDER BEFORE US HAS UPHELD THE ORDER PASSED BY THE TPO. FINDING OF THE DRP IS REPRODUCED HEREIN BELOW FOR THE SAKE OF CLARIFY : 11.1 THE TPO HAS DONE DETAILED FUNCTIONAL ANALYSIS OF THE COMPANIES BEFORE SELECTING / REJECTING THEM AS COMP ARABLES. THE COMPARABLES HAVE ALSO BEEN SELECTED AFTER SUBJE CTING IT(TP)A.129/BANG/2016 PAGE - 8 THEM TO VARIOUS FILTERS APPLIED BY TPO. THE TPO HAS GIVEN DETAILED REASONS AND JUSTIFICATIONS FOR SELECTION O F FINAL COMPARABLES FOR DETERMINATION OF MARGIN. THE ASSESS EE HAS USED MULTIPLE YEAR DATA IN SELECTING COMPARABLES WI THOUT JUSTIFYING THE SAME. THIS IS AGAINST RULE 10B(4). D ATA FOR SOME OF THE COMPANIES PROPOSED BY ASSESSEE WERE NOT FOUN D TO BE AVAILABLE IN PUBLIC DOMAIN. IN VIEW OF ALL THESE FA CTS AND CIRCUMSTANCES THE CONTENTION OF THE ASSESSEE CANNOT BE ACCEPTED AND HENCE REJECTED. 12. THE DIRECTIONS OF THIS PANEL, AS PER THE DISCUS SIONS ABOVE, ARE HEREBY COMMUNICATED TO THE ASSESSEE AND THE DEPARTMENTAL AUTHORITIES CONCERNED AS PER THE PROVI SIONS OF SECTION 144C(5) OF IT ACT. 13. NOW THE ASSESSEE IS IN APPEAL BEFORE US ON THE GROUNDS MENTIONED HEREINABOVE. AT THE OUTSET, OUR ATTENTIO N WAS DRAWN TO THE ABOVE REPRODUCED PARAGRAPHS OF THE DRP ORDER, WHER EIN THE DRP IN A CRYPTIC ORDER HAD ADJUDICATED ALL THE GROUNDS RAISE D BY THE ASSESSEE PERTAINING TO TRANSFER PRICING AND OTHERS. WE ARE OF THE OPINION THAT THE LAW COMMANDS THAT THE DRP SHOULD ADJUDICATE THE GROUNDS OF THE ASSESSEE BY PASSING A DETAILED ORDER AND GIVE A REA SON FOR AGREEING OR DISAGREEING WITH THE CONTENTION OF THE ASSESSEE AS WELL AS OF THE TPO. BUT THE PERUSAL OF THE ORDER CLEARLY SHOWS THAT THE DRP HAS NOT APPLIED ITS MIND AND HAS PASSED A CRYPTIC STEREOTYP ED ORDER CONFIRMING THE ORDER PASSED BY THE TPO. IN THE LIGHT OF THE A BOVE, IT IS REQUIRED TO REMAND THE MATTER BACK TO THE FILE OF THE DRP TO AD JUDICATE IT AFRESH AFTER AFFORDING OPPORTUNITY OF HEARING TO THE ASSES SEE. NEEDLESS TO SAY THAT WHILE ADJUDICATING THE ISSUES, THE DRP SHALL B E BOUND TO CONSIDER THE LAW LAID DOWN BY THE HONBLE DELHI HIGH COURT I N THE MATTER OF IT(TP)A.129/BANG/2016 PAGE - 9 CHRYSCAPITAL INVESTMENT ADVISORS (INDIA) (P.)LTD. V . DCIT [(2015 376 ITR 183], AS WELL AS THE ORDER PASSED BY THE BANGALORE BENCH OF THE TRIBUNAL IN THE MATTER OF ACI WORLDWIDE SOLUTIO NS IN IT(TP)A.262/BANG/2015, DT.26.07.2017. IN VIEW THER EOF THE GROUND NOS.1 TO 15, PERTAINING TO TP RAISED BY THE ASSESSE E ARE REMANDED BACK TO THE FILE OF THE DRP FOR ADJUDICATION AFRESH. 14. GROUND NOS.16 TO 18 PERTAIN TO COMPUTATION OF D EDUCTION U/S.10A BY REDUCING THE SUMS OF RS.1,900,478 AND R S.5,152,837/- TOWARDS TELECOM & COMMUNICATION EXPENSES AND INTERN ET CHARGES INCURRED IN FOREIGN CURRENCY ONLY FROM THE EXPORT T URNOVER WHILE IT SHOULD HAVE BEEN REDUCED BOTH FROM THE EXPORT TURNO VER AND ALSO THE TOTAL TURNOVER. 15. WE HAVE HEARD THE RIVAL SUBMISSIONS. IN THIS REGARD, WE FIND THAT THE DRP HAD FOLLOWED THE JUDGMENT OF HONBLE J URISDICTIONAL HIGH COURT IN THE CASE OF TATA ELXSI LTD V. CIT [34 9 ITR 98], IN DIRECTING EXCLUSION OF ITEMS WHICH ARE DEDUCTED FRO M EXPORT TURNOVER ALSO TO BE DEDUCTED FROM THE TOTAL TURNOVER ALSO FO R WORKING OUT THE DEDUCTION U/S.10A OF THE ACT. SINCE THE DRP HAD RI GHTLY FOLLOWED THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT I N TATA ELXSI (SUPRA), IN GIVING SUCH DIRECTIONS, WE DO NOT FIND ANY LACUNAE IN THE ORDER OF TPO / AO. 16. GROUND NO.19 IS IN RESPECT OF LEVY OF INTEREST U/S.234B AND 234C, WHICH IS ONLY CONSEQUENTIAL, IT REQUIRES NO A DJUDICATION. IT(TP)A.129/BANG/2016 PAGE - 10 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH DAY OF OCTOBER, 2017. SD/- SD/- (JASON P. BOAZ) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL M EMBER MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER SENIOR PRIVATE SECRETARY