GOLDMAN SACHS SERVICES P.LTD, MUMBAI V. ITO 10(3)(3), MUMBAI

ITA 1315/MUM/2014

• Counselvise Citation: 131519914 RSA 2014
• Duration Of Justice: 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 28-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 27-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Assessee Lawyers: ARVIND SONDE
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 234B; 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, M UMBAI BEFORE HONBLE S/SHRI JOGINDER SINGH (JM) , AND N. K. BILLAIYA (AM) , . . , ! '# ./I.T.A. NO.1315/MUM/2014 ( $% & / ASSESSMENT YEAR : 2009-10) GOLDMAN SACHS SERVICES PVT.LTD., (SUCCESSOR TO PATERNOSTER INDIA PVT.LTD.), 951-A, RATIONAL HOUSE, APPASAHEB MARATHE MARG, PRABHADEVI, MUMBAI-400025 / VS. INCOME TAX OFFICER, WARD 10(3)(3), ROOM NO.452, 4 TH FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020 ( '#'( / APPELLANT) .. ( )*'( / RESPONDENT) ' ./ !+! ./PAN/GIR NO. :AACCG2435N '#'( , / ASSESSEE BY: SHRI ARVIND SONDE )*'( - , /REVENUE BY : SHRI N K CHAND . / - 01 / DATE OF HEARING : 29.1.2015 2&% - 01 /DATE OF PRONOUNCEMENT : 06.2.2015 / O R D E R PER N. K. BILLAIYA (AM) THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ASSESSMENT ORDER DATED 31.1.2014 MADE UNDER SECTIO N 143(3) R.W.S.145C(13) OF THE INCOME TAX ACT, 1961 (THE A CT). 2. THE ASSESSEE HAS RAISED IN ALL 13 GROUNDS OF A PPEAL. GROUND NOS.1 TO 6 RELATE TO THE TRANSFER PRICING ADJUSTMEN T. GROUND NOS. 8 TO ITA NO.1315/M/14 2 10 RELATES TO DISALLOWANCE MADE UNDER SECTION14A R. W. RULE 8D OF THE INCOME TAX RULES, 1962 AND GROUND NOS. 12 AND 13 RELATE TO LEVY OF INTEREST U/S 234B AND 234C OF THE ACT. 2.1 BRIEFLY STATED THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS IN THE BUSINESS OF INFORMATION TECHNOLOGY SUPPORT OPER ATIONS AND BACK END OPERATIONS. THE RETURN OF INCOME FOR THE YEAR U NDER CONSIDERATION WAS FILED BY THE ASSESSEE ON 29.9.2009 DECLARING T HE TOTAL INCOME OF RS.15,87,533/-. THE ASSESSEE COMPANY IS REGISTERED UNDER THE SOFTWARE TECHNOLOGY PARKS OF INDIA SCHEME. THE ASS ESSEE COMPANY IS A CAPTIVE UNIT OF THE PATERNOSTER GROUP IN INDIA AND PERFORMS A BROAD RANGE OF BACK END OPERATIONS FOR PATERNOSTER UK, WHICH INCLUDES ACTUARIAL FINANCE AND INFORMATION TE CHNOLOGY SUPPORT OPERATION. DURING THE SCRUTINY PROCEEDINGS, IT WAS INFORMED THAT THE ASSESSEE IS MERGED WITH GOLDMAN SACHS (INDIA) SEC URITIES PVT.LTD. AND NOW IT IS KNOWN AS GOLDMAN SACHS SERVICES PVT .LTD. WHILE SCRUTINIZING THE DETAILS/DOCUMENTS FURNISHED BY TH E ASSESSEE, THE AO NOTICED THAT THE ASSESSEE ENTERED INTO SOME INTE RNATIONAL TRANSACTIONS AND ACCORDINGLY HE REFERRED THE MATTER TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINATION OF ALP WI TH REFERENCE TO THE TRANSACTIONS REPORTED IN FORM 3-CEB FILED BY THE AS SESSEE. THE ASSESSEE HAS ENTERED INTO THE FOLLOWING INTERNATION AL TRANSACTIONS : ITA NO.1315/M/14 3 S. NO. NAME OF THE ASSOCIATED ENTERPRISES (AE) DESCRIPTION OF TRANSACTION AMOUNT (RS) METHOD USED TO DETERMINE ARMS LENGTH PRICE 1 PUK PSL BACK-OFFICE SUPPORT SERVICES 66594999 16,97,67,749 TNMM TNMM 2 PSL RECEIPT OF ADMINISTRATIVE ASSISTANCE 32,76,291 NOT APPLICABLE 3 PSL REIMBURSEMENT OF EXPENSES 14,48,721 NOT APPLICABLE 4 PSL RECOVERY OF MISC. EXPENSES 17,62,131 NOT APPLICABLE TOTAL 24,28,49,891 THE TPO NOTICED THAT THE ASSESSEE HAS COMPUTED ITS ALP BY USING TRANSACTIONAL NET MARGIN METHOD (TNMM) WITH OPERAT ING PROFIT TO TOTAL COST AS PROFIT LEVEL INDICATOR. THE ASSESS EE OPERATING PROFIT TO TOTAL COST IS SHOWN AT 17.11%. THE ASSESSEE HAS USE D 14 COMPARABLE COMPANIES TO JUSTIFY ITS ALP. THE AVERAG E OF THE COMPARABLES TAKEN BY THE ASSESSEE COME TO 13.54%. THE ASSESSEE WAS ASKED TO SUBMIT MARGINS OF THE COMPARABLES USIN G THE DATA OF FY 2008-09. THE ASSESSEE SUBMITTED SINGLE YEAR DAT A. THE AVERAGE MEAN OF COMPARABLES GIVEN AT 14.93%. AS THE ASSE SSEE HAS SHOWN 17.11%. IT WAS CLAIMED BY THE ASSESSEE THAT ITS I NTERNATIONAL TRANSACTIONS WITH ITS AE IS AT ALP. 3. THE TPO CONDUCTED HIS OWN SEARCH. THE SEARCH RE SULT GAVE THE SET OF 24 COMPANIES. THE ARITHMETIC MEAN OF T HESE COMPANIES CAME AT 29.77%. THE TPO ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE ASKING THE ASSESSEE TO EXPLAIN AS TO WHY THE ARITHMETIC MEAN OF 29.77% SHOULD NOT BE USED FOR COMPUTING T HE ARMS LENGTH MARGIN. THE ASSESSEE FILED A DETAILED REPLY DATED 2 4.12.2012 ITA NO.1315/M/14 4 OBJECTING THE INCLUSION OF THE COMPANIES IN THE LIS T OF COMPARABLES POINTING OUT WHY EACH COMPANY SHOULD NOT BE INCLUDE D. THE OBJECTIONS RAISED BY THE ASSESSEE ARE INCORPORATED AT PARA 7 OF THE ORDER OF TPO FROM PAGES 8 TO 10. WHILE OBJECTING T O THIS SELECTION OF COMPARABLES, THE ASSESSEE ALSO CLAIMED FOR WORKING CAPITAL ADJUSTMENT AND RISK ADJUSTMENT. AFTER CONSIDERING THE OBJECTIONS MADE BY THE ASSESSEE, THE TPO HAS DETERMINED THE F INAL SET OF COMPARABLES AS UNDER : S.NO. NAME OF COMPARABLES OP/TC (%) 1 ADITYA BIRLA MINACS WORLDWIDE LTD 23.88 2 CORAL HUBS LTD (FORMERLY VISHAL INFORMATION TECH NOLOGIES LTD) 36.93 3 COSMIC GLOBAL LTD 40.61 4 DATAMATICS FINANCIAL SERVICES LTD 3.07 5 FIRSTSOURCE SOLUTIONS LTD 6.58 6 SUNDARAM BUSINESS SERVICES LTD 2.45 7 CROSSDOMAIN SOLUTIONS LTD 29.40 8 ACCENTIA TECHNOLOGIES LTD 43.44 9 CAMEO CORPORATE SERVICES LTD. 14.42 10 ECLERX SERVICES LTD 46.98 11 EXCEL INFOWAYS LTD. 243.69 12 INFORMED TECHNOLOGIES INDIA LTD. 23.13 13 MAPLE ESOLUTIONS LTD 4.90 14 MPHASIS FINSOURCE LTD. 20.56 15 SPARSH BPO SERVICES LTD 3.98 16 SUREVIN INTERNET SERVICES LTD. 3.14 17 AOK IN HOUSE BPO SERVICES LTD. 12.48 18 KARVY DATA MGMT. SERICES LTD. 4.97 19 NUCLELUS GIS & ITES LTD. 18.78 20 ACROPETAL TECHNOLOGIES (SEG) 21.30 21 GENESYS INTERNATIONAL CORP. LIMITED 58.45 TOTAL NO. OF COMPARABLES 21 ARITHMETIC MEAN 31.8 4. TAKING THE ARITHMETIC MEAN AT 31.58% THE TPO MA DE AN ADJUSTMENT OF RS.2,92,13,537/-.THE ASSESSEE MADE ST RONG OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL (DRP). THE MA IN OBJECTION WAS (I) THE TPO USED SINGLE YEAR DATA, THE TPO OUGHT TO HAVE USED ITA NO.1315/M/14 5 MULTIPLE YEAR DATA; (II) THE CHOICE OF COMPARABLES USED BY THE TPO ARE NOT IN LINE WITH JUDICIAL PRONOUNCEMENTS IN RE SPECT OF WHICH THE COMPANIES SELECTED BY THE TPO; (III) THAT THE T PO ERRED IN REJECTING OUTRIGHT COMPANIES USED AS COMPARABLE BY THE ASSESS EE. THE DRP AFTER CONSIDERING THE OBJECTIONS RAISED BY THE ASS ESSEE VIS-A-VIS THE ORDER OF THE TPO DID NOT FIND ANY MERIT IN THE OBJ ECTIONS OF THE ASSESSEE IN SO FAR AS THEY RELATED TO THE ADJUSTME NT MADE. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE THE TRIB UNAL. 5. THE LD. COUNSEL FOR THE ASSESSEE FILED DETAILED CHART PUTTING FORTH HIS MULTIPLE PROPOSITIONS. THE MAIN PROPOSIT ION OF THE LD.COUNSEL IS THAT, IF THE MARGIN OF EXCEL INFOWAYS LTD EXCLU DED FROM THE FINAL LIST OF THE COMPARABLE, THE AVERAGE WOULD COME TO 20.97% AS COMPARED TO 17.11.% OF THE ASSESSEE WHICH FITS WITHIN 5% R ANGE AS PROVIDED IN THE ACT. IT IS THE SAY OF THE LD. COUNSEL THA T EXCEL INFOWAYS LTD HAS SHOWN A SUPER NORMAL PROFIT WITH A MARGIN OF 243.69%. 6. THE LD. DR STRONGLY OBJECTED TO THE PROPOSITION MADE BY THE LD. COUNSEL IT IS THE SAY OF THE LD. DR THAT UNDER TN MM WHAT IS PROVIDED IS BROAD COMPARABILITY AND SIMPLE ARITHMETIC MEAN IS TAKEN, THEREFORE, EVEN IF THE MARGIN IS 243% WHAT ULTIMA TELY DETERMINED IS SIMPLE ARITHMETIC MEAN AVERAGE, THEREFORE, THERE I S NO REASON WHY THIS COMPANY SHOULD BE EXCLUDED FROM THE FINAL LIS T OF COMPARABLES. ITA NO.1315/M/14 6 WE FIND THAT THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT V/S WILLIS PROCESSING SERVICES INDIA PVT LTD IN I TA NO.2152/MUM/2014(AY-2009-10) DATED 10.10.2014 HAS E XCLUDED THIS COMPANY FROM THE FINAL LIST OF COMPARABLES ACCEPTIN G IT AS EXTREME OUT LAYER. THE LD. DR STRONGLY PLACED RELIANCE ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF CAPGEM INI INDIA (P) LTD. V/S ACIT IN ITA NO.786/-MUM/2011 (AY-2007-08) DATED 28.2.2013. THE LD. DR POINTED OUT THAT IN THIS CASE , THE TRIBUNAL HAS HELD THAT COMPARABLES CASES CANNOT BE REJECTED ONLY ON GROUN D OF EXTREMELY HIGH PROFIT OR LOSS AND IN CASE COMPANIES SATISFY COMPARABILITY CRITERIA, AND DO NOT INVOLVE ANY ABNO RMAL BUSINESS CONDITIONS, SAME CANNOT BE REJECTED ONLY ON GROUND OF LOSS OR HIGH PROFIT. 7. KEEPING IN MIND THESE TWO JUDICIAL DECISIONS MEN TIONED HEREIN ABOVE, LET US SEE, WHETHER EXCEL INFOSYS LTD. SATIS FIES OTHER COMPARABILITY CRITERION. ON PERUSAL OF THE PROFIT AND LOSS ACCOUNT OF EXCEL INFOWAYS LTD. FOR THE FINANCIAL YEAR 2008-09 SHOWS THAT THE TOTAL RECEIPTS FROM THE BPO/ITS IS AT RS.18,60,40, 738/-., THE EMPLOYEES COSTS IS SHOWN AT RS.16,04,07,392/- WHIC H MAKES THE EMPLOYEES COSTS TO SALES RATIO AT 8.81%. IN OUR CON SIDERED OPINION, IN THIS LINE OF BUSINESS THE EMPLOYEES COSTS FORM MAJO R COSTS BASIS. THE LOW RATIO OF COMPARABLE OF EMPLOYEES COST WOULD MEAN THAT IT ITA NO.1315/M/14 7 WOULD NOT BE PROVIDING SERVICES BY EMPLOYEES OF IT S OWN SOURCES. INDUSTRIES AVERAGE IS CONSIDERED TO BE IN THE RANGE OF 30 TO 40%, WHEREAS THE COMPANY HAS SHOWN MEAGER 8.81%. THE C OMPANY HAVING LOW EMPLOYEES RATIO TO SALES HAVE BEEN REJEC TED BY THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF BRI GADE GLOBAL SERVICES (P.) LTD.V/S ITO (2013) 28 ITR(TRIB) 411 AND THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF WILLIS PROCE SSING SERVICES INDIA PVT LTD (SUPRA), AVAYA INDIA PVT.LTD( 2012) 1 5 ITR (T) 237 (DELHI-TRIB) AND IN THE CASE OF GOOGLE INDIA PVT.LI MITED (2013) 28 ITR (T) 403 (BANGALORE-TRIB), MOST OF THE COMPANIES SEL ECTED AS COMPARABLES BY THE TPO HIMSELF FOR EMPLOYEE COSTS TO SALES RATIO BETWEEN 30 TO 60%. EVEN IF, WE IGNORE THE SUPER N ORMAL PROFIT MARGIN OF THIS COMPANY AT 243.69% STILL THIS COMPA NY FAILS IN EMPLOYEE COST TO SALES RATIO. THEREFORE, IN OUR CO NSIDERED OPINION EXCEL INFOWAYS LTD DO NOT DESERVE TO BE INCLUDED IN THE FINAL LIST OF COMPARABLE. WE ACCORDINGLY, DIRECT FOR EXCLUSION O F THIS COMPANY FROM THE FINAL LIST OF COMPARABLE. AS POINTED OUT B Y THE LD. COUNSEL THAT IF EXCEL INFOWAYS LTD IS EXCLUDED FROM THE FI NAL LIST OF COMPARABLES, THE AVERAGE OF THE COMPARABLES WOULD C OME TO 20.97%. SINCE WE HAVE EXCLUDED EXCEL INFOWAYS LTD F ROM THE FINAL LIST OF COMPARABLES, THE AVERAGE OF THE COMPARABLES OF THE REMAINING COMPANIES AS PER TPO BEING AT 20.97% AS COMPARED TO THAT OF THE ITA NO.1315/M/14 8 ASSESSEE AT 17.11% IS WITHIN 5% RANGE AS PER THE PROVISIONS OF LAW. THE INTERNATIONAL TRANSACTIONS MADE BY THE AS SESSEE IS DIRECTED TO BE TREATED AS AT ALP. AS WE HAVE DECIDED THIS ISSUE ONLY BY EXCLUDING EXCEL INFOWAYS LTD FROM THE FINAL LIST OF COMPARABLES, WE DO NOT FIND IT NECESSARY TO DECIDE THE OTHER ISSUES IN THIS REGARD RAISED BY THE ASSESSEE. GROUNDS NO.1 TO 6 OF THE APPEAL AR E ALLOWED. 8. GROUND NO.7 OF THE APPEAL RELATES TO NON-GRANT O F EXEMPTION U/S 10(35) OF THE ACT. WE FIND THAT THIS ISSUE HAS BEEN CONSIDERED BY THE DRP VIDE PARA 4, SUB-PARA 4.2.2 AT PAGE 14 O F HIS ORDER IN WHICH THE DRP HAS GIVEN CLEAR DIRECTION THAT A DEDU CTION OF RS.5,98,957/- MUST BE ALLOWED WHILE DETERMINING THE TAXABLE INCOME OF THE ASSESSEE. WE FIND THAT THE AO HAS NOT FOLLO WED THE DIRECTION GIVEN BY THE DRP. WE DIRECT THE AO TO FOLLOW THE DI RECTION OF THE DRP. ACCORDINGLY, GROUND NO.7 IS ALLOWED. 9. GROUNDS OF APPEAL NO.8 TO 10 RELATES TO DISALLOW ANCE OF ADDITION MADE U/S 14A R.W. RULE 8D OF THE INCOME TA X RULES, 1962. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE A O GROSSLY ERRED BY WRONGLY TAKING THE QUANTITY OF UNITS PURCHASED A ND SOLD AS THE VALUE OF MUTUAL FUNDS. WE FIND THAT THERE IS NO OP ENING AND CLOSING BALANCE. WHAT THE AO HAS TAKEN IS THE QUANTITY OF UNITS PURCHASED AND UNITS SOLD FOR THE PURPOSE OF MAKING DISALLOWAN CE U/S 14A OF THE ITA NO.1315/M/14 9 ACT. SINCE, THE DISALLOWANCE IS BASED ON FACTUAL ERRORS, WE DIRECT THE AO TO DELETE THE ADDITION OF RS.19,326/-. GROUNDS OF APPEAL NO.8 TO 10 ARE ALLOWED. 10. GROUND NO.11 OF THE APPEAL RELATES TO GRANT OF SHORT CREDIT TOWARDS ADVANCE TAX PAID . WE RESTORE THIS ISSUE T O THE FILE OF THE AO. THE ASSESSEE IS DIRECTED TO FURNISH CHALLANS O F ADVANCE TAX PAID. THE AO IS DIRECTED TO GRANT CREDIT OF ADVAN CE TAX PAID AS PER THE PROVISIONS OF LAW. THE GROUND NO.11 OF THE APPE AL IS ALLOWED. 11. GROUNDS OF APPEAL NOS.12 AND 13 RELATES OF LEVY OF INTEREST U/S 234B AND 234C OF THE ACT. THE LEVY OF INTEREST I S MANDATORY THOUGH CONSEQUENTIAL. WE ACCORDINGLY DIRECT THE AO TO C HARGE INTEREST U/S 243C AND 234B OF THE ACT. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT O N 6TH FEB, 2015. 2&% . 34 56 FEB , 2015 - / : SD SD ( /JOGINDER SINGH) ( . . , / N. K. BILLAIYA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER 3 . / MUMBAI: 6TH FEB,2015. ITA NO.1315/M/14 10 . . ./ SRL , SR. PS A BCDE FEGD / COPY OF THE ORDER FORWARDED TO : 1. '#'( / THE APPELLANT 2. )*'( / THE RESPONDENT. 3. ! ! . <0 ( '# ) / THE CIT(A)- CONCERNED 4. ! ! . <0 / CIT CONCERNED 5. 6. => )0 $ , ! '#1 ' $% , 3 . / / DR, ITAT, MUMBAI CONCERNED ? @/ / GUARD FILE. !A . / BY ORDER, TRUE COPY # (ASSTT. REGISTRAR) ! '#1 ' $% , 3 . / /ITAT, MUMBAI