M/s NI Systems (India) Private Limited, Bangalore V. DCIT, Bangalore

ITA 1354/BANG/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9462 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 10-08-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 27-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: P K PRASAD; UMASHANKAR S
• Keywords: Related party transaction; Transfer pricing; International transaction
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER IT(TP)A NO.1354/BANG/2011 ASSESSMENT YEAR : 2005-06 M/S. NI SYSTEMS (INDIA) PVT. LTD., 81/1 & 82/1, SALARPURIA SOFTZONE, B-WING, 5 TH FLOOR, A BLOCK, BELLANDUR, VARTHUR HOBLI, BANGALORE 560 103. PAN: AABCN 1159K VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12(2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : S/SHRI P.K. PRASAD & UMASHANKAR, ADVOCATES RESPONDENT BY : SHRI D. SUDHAKAR RAO, CIT(DR) DATE OF HEARING : 10.08.2016 DATE OF PRONOUNCEMENT : 12.08.2016 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(APPEALS)-IV, BANGALORE DATED 29.10.2011 FOR THE ASSESSMENT YEAR 2005-06 INTER ALIA ON THE FOLLOWING REVISED AND CONCISE GROUNDS:- NON TRANSFER PRICING RELATED NONE IT(TP)A NO.1354/BANG/2011 PAGE 2 OF 7 TRANSFER PRICING RELATED GENERAL: 1. THE LEARNED COMMISSIONER OF INCOME TAX APPEALS {'CI T (A)'}/TRANSFER PRICING OFFICER ('TPO') ERRED IN NOT APPRECIATING THAT THE TP DOCUMENTATION PREPARED BY THE APPELLANT WERE IN COMPLIANCE WITH THE INCOME-TAX AC T ('ACT') AND THE INCOME-TAX RULES, 1962 ('THE RULES' ) 2. THE LEARNED CIT (A) ERRED IN LAW AND ON FACTS IN MA KING ADDITION OF RS. 34,17,771/- TO THE TOTAL INCOME MADE ON ACCOUNT OF ADJUSTMENT IN THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION WITH THE ASSOCIATED ENTER PRISE BY DISREGARDING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT AND BY SUBSTITUTION BY THE TRANSFER PRICI NG OFFICER ('TPO') OF HIS OWN ECONOMIC ANALYSIS AND IGNORING T HE BUSINESS AND COMMERCIAL REALITIES OF THE APPELLANT; 3. THE LEARNED CIT (A) ERRED IN LAW AND ON FACTS BY US ING SINGLE YEAR DATA PERTAINING TO FY 2004-05 AND IN UPHOLDING THE TPO'S APPROACH OF USING DATA AS AT THE TIME OF ASSESSMENT PROCEEDINGS, INSTEAD OF THE DATA THAT WAS AVAILABLE AS ON THE DATE OF PREPARING THE TRANSFER PRICING ('TP') DOCUM ENTATION. 4. THE LEARNED CIT (A)/ TPO ERRED IN LAW AND ON FACTS BY REJECTING COMPANIES THAT ARE OTHERWISE FUNCTIONALLY COMPARABLE TO THE APPELLANT AND CONSIDERING COMPARA BLE COMPANIES THAT OTHERWISE FAIL THE TEST OF COMPARABI LITY; 5. THE LEARNED CIT (A)/TPO ERRED IN LAW AND ON FACTS B Y ACCEPTING SOME COMPARABLES ON THE BASIS OF INFORMAT ION OBTAINED U/S 133(6) OF THE INCOME TAX ACT ('ACT'); 6. THE LEARNED CIT(A)/TPO ERRED IN LAW AND ON FACTS BY NOT ALLOWING ADJUSTMENTS ON ACCOUNT OF DIFFERENCES IN THE RISK PROFILE OF THE APPELLANT VIS-A-VIS THE COMPARABLES; IT(TP)A NO.1354/BANG/2011 PAGE 3 OF 7 SPECIFIC GROUNDS : (COMPARABLES FOR EXCLUSION) : 7. THE LEARNED CIT(A) / TPO ERRED IN LAW AND ON FACTS BY UPHOLDING THE INCLUSION OF THE FOLLOWING COMPARABLES FOR THE STATED REASONS THEREIN AS PART OF THE FINAL LIST OF COMPARABLES FOR THE PURPOSES OF COMPARABILITY ANALYSIS TO DETERMINE THE ARM'S LENGT H PRICE OF THE INTERNATIONAL TRANSACTION AND TO DETER MINE THE ARITHMETIC MEAN OF MARK UP ON COST OF COMPARABL E COMPANIES VIS-A-VIS THAT OF THE TESTED PARTY'S MARG IN- I. EXENSYS SOFTWARE SOLUTIONS LTD - EVEN THOUGH THE SAME SHOULD HAVE' BEEN EXCLUDED AS COMPARABLE ON THE GROUND OF BEING FUNCTIONALLY DISSIMILAR HAVING EXTRA-ORDINARY EVENT OF AMALGAMATION WITH M/S HALOOL INDIA LIMITED AND DIVERSIFIED BUSINESS OPERATIONS SUCH AS SOFTWARE PRODUCTS AND SERVICES, CONSULTANCY AND ERP IMPLEMENTATION; II. SANKHYA INFOTECH LTD - EVEN THOUGH THE SAME SHOULD HAVE BEEN EXCLUDED AS COMPARABLE ON THE GROUND OF BEING FUNCTIONALLY DISSIMILAR WITH DIVERSIFIED OPERATIONS INCLUDING DEVELOPMENT OF SOFTWARE PRODUCTS FOR THE TRANSPORT AND AVIATION INDUSTRIES; III. FOURSOFT LTD - EVEN THOUGH THE SAME SHOULD HAVE BEEN EXCLUDED AS COMPARABLE ON THE GROUND OF HAVING RELATED PARTY TRANSACTIONS ('RPT') MORE THAN 15% WHICH IMPLIES A SIGNIFICANT INFLUENCE ON THE BUSINESS OF THE COMPARABLE; IV. THIRDWARE SOLUTIONS LTD - EVEN THOUGH THE SAME SHOULD HAVE BEEN EXCLUDED AS COMPARABLE ON THE GROUND OF BEING FUNCTIONALLY DISSIMILAR WITH DIVERSIFIED OPERATIONS INCLUDING DEVELOPMENT OF SOFTWARE PRODUCTS, SALE OF SOFTWARE LICENSES ETC.; IT(TP)A NO.1354/BANG/2011 PAGE 4 OF 7 V. GEOMETRIC SOFTWARE SOLUTIONS CO LTD - EVEN THOUGH THE SAME SHOULD HAVE BEEN EXCLUDED AS COMPARABLE ON THE GROUND OF HAVING RELATED PARTY TRANSACTIONS ('RPT') MORE THAN 15% WHICH IMPLIES A SIGNIFICANT INFLUENCE ON THE BUSINESS OF THE COMPARABLE; VI. TATA ELXSI LIMITED (SOFTWARE DEVELOPMENT SEGMENT) - EVEN THOUGH THE SAME SHOULD HAVE BEEN EXCLUDED AS COMPARABLE ON THE GROUND OF BEING FUNCTIONALLY DISSIMILAR WITH DIVERSIFIED ACTIVITIES IN SOFTWARE DEVELOPMENT SEGMENT; VII. FLEXTRONICS SOFTWARE SYSTEMS LTD (SEGMENT) - EVEN THOUGH THE SAME SHOULD HAVE BEEN EXCLUDED AS COMPARABLE ON THE GROUND OF BEING FUNCTIONALLY DISSIMILAR HAVING HYBRID MODEL OF SUPPLYING BOTH PRODUCTS AND SERVICES; VIII. SATYAM COMPUTER SERVICES LTD. - EVEN THOUGH THE SAME SHOULD HAVE BEEN EXCLUDED AS COMPARABLE ON THE GROUND OF NOT HAVING RELIABLE FINANCIAL RESULTS; AND IX. INFOSYS LIMITED - EVEN THOUGH THE SAME SHOULD HAVE BEEN EXCLUDED AS COMPARABLE ON THE GROUND OF BEING FUNCTIONALLY DISSIMILAR OWNING BRANDS & INTANGIBLES, DIVERSIFIED OPERATIONS HAVING ITS OWN PRODUCTS ETC. COMMON GROUND 8. THE CIT (A) / TPO ERRED IN LEVYING INTEREST U/S 234 B & 234C OF THE ACT AND IN INITIATING PENALTY PROCEEDIN G U/S 271 (1)(C) OF THE ACT. IT(TP)A NO.1354/BANG/2011 PAGE 5 OF 7 2. THE ASSESSEE HAS ALSO FILED ADDITIONAL GROUND OF APPEAL AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW: TRANSFER PRICING RELATED : GROUND NO. 4 THE LEARNED ASSESSING OFFICER / TRANSFER PRICING OF FICER / COMMISSIONER OF INCOME TAX (APPEAL) ERRED IN CONSID ERING BODHTREE CONSULTING LTD. THAT FAILS THE TEST OF COMPARABILITY, AS COMPARABLE TO THE APPELLANT. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL AND TO SUBMIT SUCH STATEMENTS, DOCUMENTS AND PAPERS AS MAY BE CONSIDERED NECESSARY EITHER AT OR BEFORE THE APPEAL HEARING. 3. DURING THE COURSE OF HEARING, OUR ATTENTION WAS INVITED TO THE FACT THAT THE CIT(APPEALS) HAS DECIDED THE APPEAL EX PARTE WITHOUT DEALING THE ISSUES ON MERITS. THEREFORE, THE ORDER OF CIT(A) B E SET ASIDE AND THE MATTER BE RESTORED TO HIS FILE. THE LD. COUNSEL FOR THE ASSESSEE INSISTED FOR THE DISPOSAL OF THE APPEAL ON MERITS. THE LD. DR O PPOSED THE SUBMISSION OF THE ASSESSEE ON THE GROUND THAT THE TRIBUNAL SHO ULD HAVE THE BENEFIT OF THE FINDINGS OF THE FIRST APPELLATE AUTHORITY. 4. HAVING CAREFULLY EXAMINED THE ORDER OF CIT(APPEA LS), WE FIND THAT THE CIT(A) HAS FIXED THIS APPEAL FOR HEARING ON FOU R DATES. THE LD. COUNSEL FOR THE ASSESSEE HAS APPEARED AND SOUGHT TIME, BUT HIS APPEARANCE WAS NOT ACKNOWLEDGED BY THE CIT(APPEALS) ON THE GROUND THAT THERE WAS NO POWER OF ATTORNEY IN HIS FAVOUR. THOUGH THE CIT(A) HAS ADJOURNED THE IT(TP)A NO.1354/BANG/2011 PAGE 6 OF 7 HEARINGS ON ACCOUNT OF NON-APPEARANCE OF THE ASSESS EES COUNSEL, BUT THE CIT(APPEALS) HAS DISMISSED THE APPEAL SUMMARILY WIT HOUT DEALING WITH THE ISSUES ON MERIT. UNDER THE INCOME-TAX ACT, THE CIT (APPEALS) IS NOT COMPETENT TO DISMISS THE APPEAL IN LIMINE. HE IS RATHER UNDER OBLIGATION TO DISPOSE OF THE APPEAL ON MERITS, EVEN IF NOBODY APP EARS ON BEHALF OF THE ASSESSEE. SINCE THE APPEAL HAS NOT BEEN DISPOSED O F ON MERITS BY THE CIT(APPEALS), WE SET ASIDE HIS ORDER AND RESTORE TH E APPEAL TO HIS FILE TO ADJUDICATE THE ISSUES ON MERITS, AFTER AFFORDING OP PORTUNITY OF BEING HEARD TO THE ASSESSEE, WITHIN A PERIOD OF SIX MONTHS FROM THE DATE OF RECEIPT OF THIS ORDER. WE ALSO DIRECT THE ASSESSEE TO EXTEND ALL SORTS OF COOPERATION IN DISPOSAL OF THE APPEAL WITHIN TIME SPECIFIED. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF AUGUST, 2016. SD/- SD/- ( INTURI RAMA RAO ) (SUNIL KUMAR YA DAV ) ACCOUNTANT MEMBER JUDIC IAL MEMBER BANGALORE, DATED, THE 12 TH AUGUST, 2016. /D S/ IT(TP)A NO.1354/BANG/2011 PAGE 7 OF 7 COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.