Nvidia Graphics Private Limited, Bangalore V. DCIT, Bangalore

ITA 1316/BANG/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9293 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 06-10-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 20-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; International transaction
• Section: 92C; 234B; 133(6); 27

Judgement Text

IN THE INCOME TAX APPELLATE TRI BUNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SMT ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.1316 (BANG) 2011 (ASSESSMENT YEARS : 2007 08 ) M/S NVIDIA GRAPHICS PVT. LTD., (ASSESSMENT IN THE NAME OF PORTAL PLAYER (INDIA) PV T. LTD., (NOW MERGED WITH NVIDIA GRAPHICS PVT. LTD.), C1 :JACARANDA, WING A, MANYATA EMBASSY BUSINESS PARK, OUTER RING ROAD, BANGALORE - 560045 PAN : AABCP7418F APPELLANT VS THE DCIT, CIRCLE 12 (2), BANGALORE RESPONDENT ASSESSEE BY : SHRI CHAVALI NARAY AN, C. A. REVENUE BY : MISS NEERA MALHOTRA, CIT DR DATE OF HEARING : 17-10-2016 DATE OF PRONOUNCEMENT: : -11- 2016 O R D E R PER SHRI A.K.GARODIA, AM THIS APPEAL IS FILED BY THE ASSESSEE. THIS IS DIRE CTED AGAINST THE ASSESSMENT ORDER DATED 11.10.2011 PASSED BY THE A. O. U/S 143 (3) R.W.S. 144 C OF THE I T ACT, 1961 FOR A. Y. 2007 08. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER :- B ASE D ON THE FACTS AND CI R CUMSTANCES OF THE CASE AND IN LAW, NVIDIA GRAPHICS PRIVATE LIMITE D (HEREI N AFTER REFERRED TO AS ' APPELLANT ' ) RESPECTFULLY C R AVES LEAVE TO PREFER AN APPEAL AGAINST THE ORDER PASSED B Y DEPUT Y COMMISSIONER OF INCOME-TAX - CIRCLE 12(2) ('AO') DATED 11 OCTOBER 2011 IN PURS U ANCE OF THE DIRECTIONS ISSUED BY ITA NOS.1316(BANG)2011 2 DISPU T E RESOLUTION PANEL ( ' DRP') , BANGALORE (DATED 23 SEPTEMBER 2011) UNDER SECTION 253 OF THE INCOME - TAX ACT , 1961 (, ACT ' ) IN RESPECT OF THE ASSESSMENT MADE ON PORTAL PLAYER ( INDIA) PRIVATE LIMITED (NOW MERGED W I TH NVIDIA GRAPHICS P RIVATE LIMITED) ON THE FOL L OWING GROUNDS : THAT ON THE FACT S AND CIRCUMST A NCES OF THE CA S E AND IN LAW , I. THE LEARNED AO , BA S ED ON DIRECTIONS OF THE HON ' BLE DRP , H A S ERRED IN AS S ES S ING THE TOTA L INCOME AT RS . 1 , 89 , 02 , 851 / - AS AGAINST RETURNED INCOME OF RS. 15 , 74 , 004 / - COMPUTE D BY THE APPELLANT ; GR O UND S O ( A PP EA L R E L A TING T O CO RP O R A T E T AX M ATTE R S 2. THE LEARNED AO HAS ERRED IN LAW B Y HOLDIN G THAT THE T E LECOMMUNICATION E X PENSES ( I . E. LEASED LINE CHARGES) ATTRIBUTABLE TO THE DELI V ER Y O F COMPUTER S O F T W ARE OUTSIDE INDIA SHOULD BE REDUCED F R OM EXPORT TURNOVER WHILE C OMPU T IN G T H E D E DU C TION UNDER S ECTION 1O A O F THE ACT ; 3. THE LEARNED AO HAS ERRED IN LA W B Y H O LD ING THAT T HE TR AVE LLIN G A ND CON VEY ANC E E X PENSES INCURRED IN FOREIGN CURRENC Y ARE TO W ARD S TECH N ICA L SERV I C E S R E ND ERE D OU TSI D E INDI A AND SHOULD BE REDUCED FROM ' E X PORT T U RNOVER ' WHILE CO MPU T I NG TH E P ROFITS E LI GI BLE FOR DEDUCTION UNDER SECTION 1OA OF THE A C T ; 4. THE LEARNED AO HAS ERR E D IN L AW B Y NOT C O NSIDERING THAT, IF ANY EXPEND IT URE I S R E DU C ED F ROM E X PORT TURNOVER , ON T H E PRINCIPLE OF PARIT Y AN EQUAL AMO UNT S H O ULD A L S O BE REDUCED FROM TOTAL TURNOVER FOR COMPUTING THE DEDUCTI O N UNDER SECTION 1OA OF T H E ACT; GROUNDS OF APPEAL RELATING TO TRANSF E R PRICING MATTERS ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW: 5. THE LEARNED AO / TRANSFER PRICING OFFICER ( ' TPO') ERRED IN MAKING AN ADDITION OF RS. 1 , 57,38,352 TO THE TOTAL INCOME OF THE APPELLANT ON ACCOUNT OF ADJUSTMENT IN THE AR M'S LENGTH PRICE OF THE SOFTWARE DEVELOPMENT SERVICES TRANSACTION ENTERED BY THE APPELLANT WITH ITS ASSOC IATED ENTERPRISE; 6. THE LEARNED AO / TPO ERRED IN DISREGARDING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT AND CONDUCTING A ITA NOS.1316(BANG)2011 3 FRESH ECONOMIC ANALYSIS FOR THE DETERMINATION OF TH E ARM'S LENGTH PRICE IN CONNECTION WITH THE IMPUGNED INTERNATIONAL TRANSACTION AND HOLDING THAT THE APPE LLANT'S INTERNATIONAL TRANSACTION IS NOT AT ARM ' S LENGTH; 7. THE LEARNED AO / TPO ERRED IN DETERMINING THE ARM ' S LENGTH MARGIN ! PRICE USING ONLY FINANCIAL YEAR 2006-07 DATA, WHICH WAS NOT AVAILABLE TO THE APPELLANT AT T HE TIME OF COMPLYING WITH THE TRANSFER PRICING DOCUMEN TATION REQUIREMENTS; 8. THE LEARNED TPO ERRED IN OBTAINING INFORMATION WHIC H WAS NOT AVAILABLE IN PUBLIC DOMAIN BY EXERCISING PO WERS U / S 133(6) OF THE ACT AND RELYING ON THE INFORMATION FOR COMPARABILITY ANALYSIS ; 9. THE LEARNED AO / TPO ERRED IN REJECTING CERTAIN COMPARABLES CONSIDERED BY THE APPELLANT IN THE COMPARABILITY ANALYSIS BY APPLYING DIFFERENT QUANTI TATIVE AND QUALITATIVE FILTERS ; A) THE LEARNED AO / TPO ERRED IN REJECTING CERTAIN COMPARABLES CONSIDERED BY THE APPELLANT IN THE COMPARABILITY ANALYSIS USING 'ONSITE REVENUES GREAT ER THAN 75% OF THE EXPORT REVENUES' AS A COMPARABILITY CRITERION; B) THE LEARNED AO / TPO ERRED IN REJECTING CERTAIN COMPARABLES CONSIDERED BY THE APPELLANT IN THE COMPARABILITY ANALYSIS USING ' EMPLOYEE COST GREATER THAN 25% OF THE TOTAL REVENUES' AS A COMPARABILITY CRITE RION; C) THE LEARNED AO / TPO ERRED BY REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIED BY THE APPELLANT US ING TURNOVER < RS . 1 CRORE AS A COMPARABILITY CRITERION; D) THE LEARNED AO / TPO ERRED IN REJECTING CERTAIN COMPARABLES CONSIDERED BY THE APPELLANT IN THE COMPARABILITY ANALYSIS ON THE GROUND THAT THE COMPARABLES WERE HAVING DIFFERENT ACCOUNTING YEAR ( OTHER THAN MARCH 31 OR COMPANIES WHOSE FINANCIAL STATEMEN TS WERE FOR A PERIOD OTHER THAN 12 MONTHS); E) THE LEARNED AO / TPO ERRED BY REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIED BY THE APPELLANT AS HAVING ECONOMIC PERFORMANCE CONTRARY TO THE INDUSTR Y BEHAVIOR (E.G. COMPANIES WHICH SHOWED A DIMINISHING REVENUE TREND); 10. THE LEARNED AO / TPO ERRED IN ACCEPTING / REJECTING COMPANIES BASED ON UNREASONABLE COMPARABILITY CRITE RIA; 11. THE LEARNED AO / TPO ERRED IN NOT CONSIDERING THE ITA NOS.1316(BANG)2011 4 FOREIGN EXCHANGE FLUCTUATION GAIN (LOSS) IN COMPUTI NG THE OPERATING MARGIN OF THE APPELLANT AS WELL AS THE COMPARABLE COMPANIES; 12. THE LEARNED AO I TPO HAS ERRED , IN LAW AND IN FACTS , BY WRONGLY COMPUTING THE OPERATING / ' MARGINS OF SOME OF THE COMPARABLE COMPANIES IDENTIFIED IN THE TP ORDER ; 13. THE LEARNED AO I TPO ERRED IN COMPUTING THE WORKING CAPITAL ADJUSTMENT OF THE APPELLANT BY NOT CONSIDER ING ADVANCES RECEI V ED FROM HOLDING COMPANY OF THE APPELLANT ; 14. THE LEARNED AO I TPO ERRED IN NOT MAKING SUITABLE ADJUSTMENTS ON ACCOUNT OF DIFFERENCES IN THE RISK P ROFILE OF THE APPELLANT VIS-A-VIS THE COM PARABLES, WHILE CONDUCTING COMPARABILITY ANALY S IS ; 15. THE LEARNED AO I TPO HAVE ERRED IN IGNORING THE FACT THAT SINCE THAT APPELLANT IS AVAILING TAX HOLIDAY U / S 1OA OF THE ACT , THERE IS NO INTENTION TO SHIFT THE PROFIT BASE OUT OF INDIA , WHICH IS ONE OF THE BASIC INTENTION OF THE INTRODUCTION OF TRANSFER PRICING PROVISIONS ; 16. THE LEARNED AO I TPO ERRED IN COMPUTING THE ARMS LENGTH PRICE WITHOUT GIVING BENEFIT OF + 1 - 5 PERCENT UNDER THE PROVISO TO SECTION 92C OF THE ACT; 17. THE LEARNED AO ERRED IN LEVYING INTEREST OF RS. 33 , 59 , 235 AND RS. 13 , 503 U / S 234B AND 234C OF THE ACT RESPECTIVELY ; 18. THE LEARNED AO ERRED , I N LAW , AND IN FACTS , IN INITIATING PENALT Y PROCEEDINGS U / S 27 1 ( 1)(C) OF THE ACT . THE APPELLANT SUBMITS THAT EACH OF THE ABOVE GROUND S IS INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND , VARY , OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL , SO AS TO ENABLE THE HON ' BLE TRIBUNAL TO DECIDE ON THE APPEAL IN ACCORDANCE WITH THE LAW. 3. IT IS SUBMITTED BY THE LEARNED AR OF THE ASSESSE E THAT GROUND NO. 1 IS GENERAL AND GROUNDS 2 & 3 ARE NOT PRESSED. ACC ORDINGLY, GROUNDS 2 & 3 ARE REJECTED AS NOT PRESSED AND IT IS HELD TH AT NO SEPARATE ADJUDICATION IS CALLED FOR IN RESPECT OF GROUND NO. 1. ITA NOS.1316(BANG)2011 5 4. REGARDING GROUND NO. 4, HE SUBMITTED THAT THE IS SUE INVOLVED IN THIS GROUND IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE O F TATA ELXSI LTD AS REPORTED IN 349 ITR 98. RESPECTFULLY FOLLOWING THIS JUDGMENT, WE DIRECT THE A.O. TO REDUCE THE AMOUNT OF EXPENDITURE REDUCE D BY HIM FROM EXPORT TURNOVER FROM TOTAL TURNOVER ALSO BECAUSE TH IS WAS HELD BY HONBLE KARNATAKA HIGH COURT THAT TOTAL TURNOVER IS SUM TOTAL OF DOMESTIC AND EXPORT TURNOVER AND THEREFORE, IF AN A MOUNT IS REDUCED FROM EXPORT TURNOVER, TOTAL TURNOVER ALSO GETS REDU CED AUTOMATICALLY BY THE SAME AMOUNT. THIS GROUND IS ALLOWED. 5. REGARDING REMAINING GROUNDS INVOLVING TP ISSUES, HE SUBMITTED THAT GROUNDS NOS. 5 TO 8 AND 9(A), 9 (B), 9 (D) & 9 (E) ARE NOT PRESSED AND ACCORDINGLY, THESE GROUNDS ARE REJECTED AS NOT PRES SED. IN RESPECT OF REMAINING GROUNDS INVOLVING TP ISSUES, HE SUBMITTED THAT THESE ISSUES MAY BE RESTORED BACK TO THE AO/TPO FOR A FRESH DECI SION BECAUSE NEITHER THE ASSESSEE RAISED PROPER OBJECTIONS BEFOR E DRP AND NOR DRP HAS PROPERLY ADJUDICATED THE MATTER. LEARNED DR OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIN D THAT IN FACT, NEITHER THE ASSESSEE RAISED PROPER OBJECTIONS BEFOR E DRP AND NOR DRP HAS PROPERLY ADJUDICATED THE MATTER. WE THEREFORE, IN THE INTEREST OF JUSTICE, SET ASIDE THE ASSESSMENT ORDER ON THESE IS SUES RAISED IN ITA NOS.1316(BANG)2011 6 GROUND 9 ( C) AND 10 TO 16 AND RESTORE THE MATTER B ACK TO AO/TPO FOR FRESH DECISION AFTER AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THESE GROUNDS ARE ALLOWED FOR STATIST ICAL PURPOSES. GROUND NO 17 IS CONSEQUENTIAL AND GROUND NO. 18 IS PREMATURE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED IN THE TERMS INDICATED ABOVE. 8. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE M ENTIONED ON THE CAPTION PAGE. (SMT ASHA VIJAYARAGHAVAN (A.K. GARODIA) JUDICAL MEMBER ACCOUNTANT MEMBER PLACE: BANGALORE: D A T E D : .11.2016 AM * COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER AR, ITAT, BANGALORE ITA NOS.1316(BANG)2011 7 1. DATE OF DICTATION .. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P. S. .. 4 DATE ON WHICH THE ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT .. 5. DATE ON WHICH THE ORDER COMES BACK TO THE SR. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO . 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER DOES FOR XEROX & ENDORSEMENT . 10. DATE ON WHICH THE FILE GOES TO T HE HEAD CLERK. 11 THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER. 12 THE DATE ON WHICH THE FILE GOES TO THE DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER 13 DATE OF DISPATCH OF ORDER