GE BE Private Limited, Bangalore V. DCIT, Bangalore

ITA 1291/BANG/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5527 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 14-03-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 03-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G R REDDY
• Assessee Lawyers: N VENKATARAMAN SR
• Keywords: Transfer pricing; Opportunity of being heard
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI A .K. GARODIA , ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO , JUDICIAL MEMBER I.T. (T.P) A. NO. 1291 /BANG/201 2 (ASSESSMENT YEAR : 20 08 - 09 ) M/S. GE BE PVT. LTD., 60, EPIP, WHITEFIELD, BA NGALORE - 560 066 PAN AAACG 6714A VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 11(3), BANGALORE. APPELLANT RESPONDENT. APPELLANT BY: SHRI N. VENKATARAMAN, SR. COUNSEL. RESPONDENT BY: SHRI G. R. REDDY, CIT (DR) (ITAT) - 1, BENGALURU. DATE OF HEARING: 14.03.2017. DATE OF PRONOUNCEMENT : 13.04 . 201 7 . O R D E R PER SHRI VIJAY P AL RAO, J. M. : THIS APPEAL BY THE ASS ESSEE IS DIRECTED AGAINST THE ASSESSMENT ORDER DT.27.08.2012 PASSED UNDER SECTION 143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') IN PURSUANT TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (IN SHORT DRP ) DT.4.7.2012 FOR THE ASSES SMENT YEAR 2008 - 09. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : 2 IT (TP) A NO. 1291 /BANG/ 201 2 3 IT (TP) A NO. 1291 /BANG/ 201 2 3. GROUND NO.1 TO 4 ARE GENERAL IN NATURE AND DO NOT REQUIRE ANY SPECIFIC ADJUDICATION. 4. GROUND NO.5 IS REGARDING THE MOST APPROPRIATE METHOD ( MAM ) ADOPTED BY THE TRANSFER PRICING OFFICER ( TPO ) AS COST PLUS METHOD ( CPM ) INSTEAD OF TRANSACTIONAL NET MARGIN METHOD ( TNMM ) ADOPTED BY THE ASSESSEE. 5. WE HAVE HEARD THE LEARNED SENIOR COUNSEL FOR THE ASSESSEE AS WELL AS LEARNED CIT, DR AND CONSIDERED THE REL EVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THE TPO HAS ADOPTED TNMM AS MOST APPROPRIATE METHOD FOR THE A.Y. 2010 - 11 AS WELL AS IN THE SU BSEQUENT YEARS. AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE' S OWN CASE FOR 4 IT (TP) A NO. 1291 /BANG/ 201 2 THE ASSESSMENT YEAR 2006 - 07 VIDE ORDER DT.4.11.2016 IN IT(TP)A NO.1222/BANG/2010 IN PARA 9 AS UNDER : 9. REGARDING THE TP ISSUE RAISED BY THE ASSESSEE INBOTH YEARS, WE FIND THAT IN A.Y. 2010 - 11, THE TPO HAS ADOPTED TNMM AS MOST APPROPRI ATE METHOD. SIMILARLY, IN A.Y. 2012 - 13, THE ASSESSEE HAD ADOPTED TNMM AS MAM AND THE TPO HAS APPROVED THE SAME BECAUSE NO TP ADJUSTMENT HAS BEEN PROPOSED BY HIM IN THE ORDER PASSED BY HIM ON 29.01.2016. IN THE PRESENT TWO YEARS, THE TPO HAS CONSIDERED CP M AS MAM ALTHOUGH, THE ASSESSEE HAD CLAIMED IN BOTH THESE YEARS ALSO THAT TNMM SHOULD BE CONSIDERED AS MAM. SINCE IN THE SUCCEEDING YEARS, THE TPO HAS ALSO ACCEPTED TNMM AS MAM, WE FEEL IT PROPER THAT IN THESE TWO YEARS ALSO, TNMM SHOULD BE ADOPTED AS MAM AND FOR THIS PURPOSE, WE RESTORE THE ENTIRE TP MATTER BACK TO THE FILE OF THE ASSESSING OFFICER/TPO FOR WORKING OUT THE ALP IN BOTH THESE YEARS BY ADOPTING TNMM AS MAM AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. BY FOLLOWING TH E EARLIER ORDER OF THIS TRIBUNAL, WE DIRECT THE ASSESSING OFFICER / TPO TO APPLY TNMM AS MAM FOR THE PURPOSE OF DETERMINING THE ALP. 6. THE NEXT ISSUE RAISED BY THE ASSESSEE IS DENIAL OF WORKING CAPITAL ADJUSTMENT AS RAISED IN THE GROUND NO.8 OF THE AS SESSEE'S APPEAL. 7. WE HAVE HEARD THE LEARNED SENIOR COUNSEL FOR THE ASSESSEE AS WELL AS LEARNED CIT, DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD. SENIOR COUNSEL HAS POINTED OUT THAT THE TPO HAS DENIED THE BENEFIT OF WORKING CAPITAL ADJU STMENT ON THE GROUND THAT SINCE CPM HAS BEEN ADOPTED AS MAM THEREFORE NO WORKING CAPITAL ADJUSTMENT IS REQUIRED TO BE ALLOWED. HE HAS FURTHER 5 IT (TP) A NO. 1291 /BANG/ 201 2 POINTED OUT THAT IN THE EARLIER YEAR THE TPO HAS ALLOWED THE WORKING CAPITAL ADJUSTMENT IRRESPECTIVE OF THE FACT THAT CPM WAS ADOPTED AS MAM. 8. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 9. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND RELEVANT MATERIAL ON RECORD, WE FIND THAT WHEN THE ISS UE OF MAM HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE THEN THE ISSUE OF WORKING CAPITAL ADJUSTMENT IS REQUIRED TO BE RECONSIDERED BY THE TPO/A.O. ACCORDINGLY, WE DIRECT THE TPO/A.O. TO CONSIDER THE BENEFIT OF WORKING CAPITAL ADJUSTMENT. 10. THE NE XT EFFECTIVE GROUND NO.10 IS REGARDING COMPARABILITY OF VARIOUS COMPANIES SELECTED BY THE TPO. THOUGH THE ASSESSEE HAS RAISED THE ISSUE OF COMPARABILITY OF FIVE COMPANIES HOWEVER AT THE TIME OF HEARING, THE LD. SENIOR COUNSEL HAS STA T ED THAT THE ASSESSEE IS PRESSING THE EXCLUSION OF TWO COMPANIES VIZ . INFOSYS BPO LTD . AND WIPRO LIMITED (BPO DIVN.). THUS THE LD. SENIOR COUNSEL HAS SUBMITTED THAT THE ASSESSEE'S TURNOVER IS ONLY RS.4 CRORES IN ITES SEGMENT WHEREAS TURNOVER OF THESE TWO COMPANIES IS 100 TIMES MORE THAN THE ASSESSEE'S TURNOVER. HE HAS THUS SUBMITTED THAT IN VIEW OF THE CONSISTENT FINDING OF THIS TRIBUNAL ON THIS ISSUE THAT THE COMPANY HAVING MORE THAN OR LESS THAN 10 TIMES OF THE ASSESSEE'S TURNOVER CANNOT BE CONSIDERED AS A GOOD 6 IT (TP) A NO. 1291 /BANG/ 201 2 COMPARABLE TH EREFORE THESE TWO COMPANIES ARE REQUIRED TO BE EXCLUDED. HE HAS ALSO RELIED UPON THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SYMPHONY MARKET ING S OLUTION S INDIA PVT. LTD. VS. ITO IN IT(TP)A NO.1316/BANG/2012 DT.14.8.2013. HE HAS FURTHER POINTED OUT THAT THESE COMPANIES ARE OTHERWISE NOT COMPARABLE BECAUSE OF HAVING BRAND VALUE, BARGAINING POWER AS COMMANDING PREMIUM PRICE A WELL AS HAVING THEIR OWN INTANGIBLES. 11. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIV E HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE DECISION IN THE CASE OF OTHER ASSESSEE CANNOT BE BLINDLY FOLLOWED IN THE OTHER CASES WITHOUT DOING THE EXERCISE OF FAR ANALYSIS INDEPENDENTLY. 12. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND RELEVANT MATERIAL ON RECORD, AT THE OUTSET WE NOTE THAT THE FUNCTIONAL COMPARABILITY OF THESE TWO COMPANIES HAS BEEN EXAMINED BY THE CO - ORDINATE BENCH IN THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. VS. ITO (SUPRA) FOR THE SAM E ASSESSMENT YEAR IN PARAS 24 & 26 AS UNDER : (7) INFOSYS BPO LTD . 24. THIS COMPANY IS LISTED AT SL.13 IN THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. AS FAR AS THIS COMPANY IS CONCERNED, IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THIS COMPANY HAS A BRAND VALUE AND THEREFORE THERE WOULD BE SIGNIFICANT INFLUENCE IN THE PRICING POLICY WHICH WILL IMPACT THE MARGINS. SCHEDULE 13 TO THE PROFIT & LOSS ACCOUNT OF THIS COMPANY FOR THE F.Y. 2007 - 08 SHOWS THAT THIS COMPANY INCURRED HUGE SELLING 7 IT (TP) A NO. 1291 /BANG/ 201 2 AND MARKETING EXPENSES. PAGE 133 OF THE ANNUAL REPORT OF THIS COMPANY FOR THE F.Y. 2007 - 08 SHOWS THAT THIS COMPANY REALIZING ITS BRAND VALUE HAS CHOSEN TO VALUE THE SAME ON THE BASIS OF ITS EARNINGS AND THAT OF INFOSYS. THE BRAND VALUE OF THE ASSES SEE AND INFOSYS HAS BEEN VALUED AT RS.31,863 CRORES. INFOSYS BPO, BEING A SUBSIDIARY OF INFOSYS, HAS AN ELEMENT OF BRAND VALUE ASSOCIATED WITH IT. THIS IS ALSO CLEAR FROM THE PRESENCE OF BRAND RELATED EXPENSES INCURRED BY THIS COMPANY. PRESENCE OF A BRAND COMMANDS PREMIUM PRICE AND THE CUSTOMERS WOULD BE WILLING TO PAY, FOR THE SERVICES/PRODUCTS OF THE COMPANY. INFOSYS BPO IS AN ESTABLISHED PLAYER WHO IS NOT ONLY A MARKET LEADER BUT ALSO A COMPANY EMPLOYING SHEER BREADTH IN TERMS OF ECONOMIES OF SCALE AND D IVERSITY AND GEOGRAPHICAL DISPERSION OF CUSTOMERS. THE PRESENCE OF THE AFORESAID FACTORS WILL TAKE THIS COMPANY OUT OF THE LIST OF COMAPARABLES. WE THEREFORE ACCEPT THE CONTENTION OF THE ASSESSEE THAT THIS COMPANY CANNOT BE REGARDED AS A COMPARABLE. 25 ( 8) WIPRO LTD . 26. THIS COMPANY IS LISTED AT SL.NO.18 IN THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. AS FAR AS THIS COMPANY IS CONCERNED, THE DISCUSSION MADE WHILE DECIDING INFOSYS BPO LTD . AS A COMPARABLE WILL EQUALLY APPLY TO THIS COMPANY ALSO. TH IS COMPANY OWNS SUBSTANTIAL INTELLECTUAL PROPERTY ON SOFTWARE PRODUCTS. THIS COMPANY CANNOT THEREFORE BE REGARDED AS A COMPARABLE. FOR THE REASONS GIVEN WHILE DISREGARDING INFOSYS BPO LTD . AS A COMPARABLE, THIS COMPANY IS ALSO DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. THERE IS NO DISPUTE THAT THESE COMPANIES ARE CARRYING A HUGE BRAND VALUE AS WELL AS MARKET LEADER IN THEIR FIELDS THEREFORE THESE COMPANIES ARE HAVING THE ADVANTAGE OF THEIR BRAND VALUE AND BARGAINING POWER TO INCREASE THE PRIC E FROM TIME TO TIME PRICES. THIS VIEW HAS BEEN UPHELD BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. AGNITY INDIA TECHNOLOGIES PVT. LTD. 36 TAXMANN.COM 289 . IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES AS WELL AS THE BINDING PRECEDENT, WE DIREC T THE TPO/A.O. TO EXCLUDE THESE TWO COMPANIES VIZ . INFOSYS BPO LIMITED AND WIRPO LIMITED (BPO DIVN.) FROM THE SET OF COMPARABLES AND 8 IT (TP) A NO. 1291 /BANG/ 201 2 THEN RECOMPUTED THE ALP. NEEDLESS TO SAY THAT THE BENEFIT OF SECOND PROVISO TO SECTION 92CA(2) ALSO BE CONSIDERED. 13. THE LEARNED SENIOR COUNSEL FOR THE ASSESSEE HAS STATED AT BAR THAT THE REST OF THE GROUNDS IN THE ASSESSEE'S APPEAL ARE CONSEQUENTIAL AND IN THE NATURE OF ARGUMENT THEREFORE THE ASSESSEE DO NOT PRESS THE SAME EXCEPT THE GROUND NO.9(C) REGARDING RISK ADJUSTMENT. 14. WE HAVE HEARD THE LEARNED SENIOR COUNSEL FOR THE ASSESSEE AS WELL AS LEARNED CIT, DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS NOT FURNISHED THE COMPUTATION AND WORKING OF THE RISK ADJUSTMENT BY GIVING THE DETA ILS OF THE ASSESSEE'S OWN DATA AS WELL AS COMPARABLES. THEREFORE IN THE ABSENCE OF THE REQUISITE DETAILS LEVEL OF RISK AND COMPUTATION OF QUANTIFICATION OF RISK ADJUSTMENT, WE DO NOT FIND ANY MERIT OR SUBSTANCE IN THE GROUND NO.9(C) OF THE ASSESSEE S APP EAL. THE SAME IS DISMISSED. 15. REST OF THE GROUNDS OF THE ASSESSEE'S APPEAL ARE DISMISSED AS NOT PRESSED. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE S APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13TH APRIL , 201 7 . SD/ - (A .K. GARODIA ) ACCOUNTANT MEMBER SD/ - (VIJAY PAL RAO) JUDICIAL MEMBER BANGALORE, DT. 13 .04. 2017. *REDDY GP