DCIT, Bangalore V. M/s Mercedes Benz Research & Development India Private Limited, Bangalore

ITA 1393/BANG/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0286 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-06-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 04-10-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NAGESHWARAR RAO MRS NEERA M
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRI BUNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K.GARODIA, ACCOUNANT MEMBER IT(TP)A NOS.1393(BANG) 2013 (ASSESSMENT YEAR : 2005-06) THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2(1), BANGALORE APPELLANT VS M/S MERCEDES BENZ RESEARCH & DEVELOPMENT INDIA PVT. LTD., (EARLIER KNOWN AS DAIMLER CHRYSLER RESEARCH TECH. I ND. PVT. LTD) PINE VALLEY, 3 RD FLOOR, EMBASSY GOLF LINKS BUSINESS PARK, OFF: INTERMEDIATE RING ROAD, BANGALORE RESPONDENT AND IT(TP)A NO.1364(BANG)/2013 (ASSESSMENT YEAR : 2005-06) (BY ASSESSEE) ASSESSEE BY : SHRI NAGESHWARAR RAO, ADVOCATE REVENUE BY : MRS. NEERA MALHOTRA CIT DATE OF HEARING : 30-06-2016 DATE OF PRONOUNCEMENT : 2 7-07-2016 O R D E R PER SHRI A.K.GARODIA, AM THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE DIRECTED AGAINST THE ORDER OF THE LD.CIT(A)-IV, BANGALORE DA TED 24-07-2013 FOR ASSESSMENT YEARS : 2005-06. 2. AT THE VERY OUTSET, IT WAS SUBMITTED BY THE LD. AR OF THE ASSESSEE THAT GROUND NO.7 TO 10 RAISED BY THE ASSESSEE IN ITS IT(TP)A NOS.1393 & 1364 (BANG)2013 2 APPEAL SHOULD BE DECIDED FIRST BECAUSE AS PER THE S AME, THE MAIN ISSUE REGARDING THE ACTION OF THE AO/TPO IN REJECTING THE COMPANIES BY APPLYING DIFFERENT QUANTITATIVE AND QUALITATIVE FIL TERS WAS NOT DECIDED BY THE LD. CIT(A) AND HENCE, IF IT IS HELD THAT THE IS SUE IS REQUIRED TO BE RESTORED BACK TO THE FILE OF THE LD. CIT(A) FOR A D ECISION ON THIS ISSUE THEN THE ENTIRE MATTER SHOULD BE RESTORED BACK TO HIS FI LE FOR FRESH DECISION AND IN THAT EVENTUALITY, NO ADJUDICATION WILL BE REQUIR ED ON ALL THE REMAINING GROUNDS RAISED BY THE ASSESSEE OR THE GROUNDS RAISE D BY THE REVENUE IN ITS APPEAL. GROUND NO.7 TO 10 RAISED BY THE ASSESSEE ARE AS UNDER; 7. THE LD. CIT(A) HAS ERRED IN NOT ADJUDICATING T HE ACTION OF THE AO/TPO IN REJECTING COMPANIES WHICH WAS NOT AVAILABLE IN PUBLIC DOMAIN BY EXERCISING POWERS U/S 133(6) OF THE ACT AND RELYING ON THE INFORMATION FOR COMPARABILITY ANALYSIS. A) APPLYING ONSITE REVENUES GREATER THAN 75% OF THE EXPORT REVENUES FILTER AS COMPARABILITY CRITERI ON IN THE SEARCH STRATEGY TO IDENTIFY COMPARABLE COMPANIES; B) APPLYING THE TURNOVER FILTER OF LESS THAN RS.1 CRORE AS A COMPARABILITY CRITERION IN THE SEARCH STRATEGY TO IDENTIFY COMPARABLE COMPANIES. 8. THE LD. CIT(A) HAS ERRED IN NOT ADJUDICATING TH E ACTION OF THE AO/TPO IN ACCEPTING CERTAIN COMPANIE S AS COMPARABLE USING UNREASONABLE COMPARABILITY CRITERIA. 9. THE LD. CIT(A) HAS ERRED IN NOT ADJUDICATING TH E ACTION OF THE AO/TPO IN NOT CONSIDERING THE FOREIGN EXCHANGE FLUCTUATION GAIN/(LOSS) IN COMPUTING THE IT(TP)A NOS.1393 & 1364 (BANG)2013 3 OPERATING MARGIN OF THE APPELLANT AS WELL AS THE COMPARABLE COMPANIES. 10. THE LD. CIT(A) HAS ERRED IN NOT ADJUDICATING T HE ACTION OF THE AO/TPO IN NOT MAKING SUITABLE ADJUSTMENTS ON ACCOUNT OF DIFFERENCES IN THE RISK PROFILE OF THE APPELLANT VIS-A-VIS THE COMPARABLES, WHILE CONDUCTING COMPARABILITY ANALYSIS. 3. THE LD. AR OF THE ASSESSEE SUBMITTED A COPY OF THE TRIBUNAL ORDER RENDERED IN THE ASSESSEES OWN CASE IN IT(TP)A NO.1 336(BANG)/2012 DATED 16-03-2016. 4. THE LD. DR OF THE REVENUE SUPPORTED THE ORDER OF THE LD.CIT(A) ON THE ASPECTS WHICH ARE RAISED BY THE ASSESSEE IN ITS APPEAL. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIN D THAT IN ASSESSMENT YEAR 2008-09, THE ISSUE BEFORE THE TRIBU NAL WAS REGARDING THE SELECTION OF MAM. ON THIS ISSUE, IT WAS HELD BY TH E TRIBUNAL THAT TNMM IS THE MOST APPROPRIATE METHOD. IN PARA-6 OF THE T RIBUNAL ORDER IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09, IT WAS NOTED BY THE TRIBUNAL IN PARA-6 OF THE TRIBUNAL ORDER THAT HAVIN G DECIDED THE MOST APPROPRIATE METHOD, THE OTHER CONTENTION OF THE ASS ESSEE WAS APPLICABILITY AND WORKING OPERATIVE MARGIN AND RISK ADJUSTMENT R EQUIRED FOR ADJUDICATION. THEREAFTER, IT WAS NOTED BY THE TRIB UNAL THAT THE ASSESSEE IT(TP)A NOS.1393 & 1364 (BANG)2013 4 HAS OBJECTED TO THIS COMPANIES LISTED IN SL.NO.1 TO 11 OF THE CHART IN PARA- 6.1 OF THE TRIBUNAL ORDER. THE ELEVEN COMPANIES AR E AS UNDER; THEREAFTER, ON PAGE-26 OF THE TRIBUNAL ORDER, IT WA S HELD BY THE TRIBUNAL THAT THE ASSESSEE IS DIRECTED TO EXCLUDE THESE COMP ANIES FROM THE LIST OF COMPARABLES. IN THE PRESENT YEAR, THE FACTS AND CI RCUMSTANCES ARE SAME OR NOT IS NOT KNOWN BECAUSE THERE IS NO DECISION OF THE LD. CIT(A) OR OF THE AO/TPO ON HIS ASPECT AND THEREFORE, WE FEEL IT PROP ER THAT THIS ISSUE ALSO SHOULD GO BACK TO THE FILE OF THE AO/TPO IN THE LIG HT OF THE TRIBUNAL DECISION IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09. NAME OF COMPANY NET MARGINS AS PER TPO ORDER (BEFORE WCA) AVANI CINCOM TECHNOLOGIES 25.62% CELESTIAL BIOLABS 87.94% KALS INFORMATION SYSTEMS LTD. (SEG) 31.29% LUCID SOFTWARE LTD. 16.50% TATA ELXSI (SEG) 18.97% YS TECHNOLOGIES LTD. 40.37% WIPRO LTD. (SEG) 28.45% BODHTREE CONSULTING LTD. 18.72% THIRDWARE SOLUTION LTD. 19.35% SOFTSOL INDIA LTD. 17.89% ZEST SOLUTIONS LTD. 29.81% IT(TP)A NOS.1393 & 1364 (BANG)2013 5 IN ADDITION TO THIS, THERE WAS ONE MORE ISSUE BEFOR E THE TRIBUNAL IN THAT YEAR BEING THE ISSUE REGARDING RE-IMBURSEMENT COSTS INCLUDED IN THE WORKING AND ON THIS ISSUE, THE MATTER WAS RESTORED BACK BY THE TRIBUNAL TO THE FILE OF THE TPO FOR FRESH DECISION. CONSIDER ING THIS FACTUAL POSITION AND IN VIEW OF OUR ABOVE DISCUSSION, WE HOLD THAT A LL THE ISSUES RAISED BY THE ASSESSEE IN ITS APPEAL ARE RESTORED BACK TO THE FILE OF THE AO/TPO OR FRESH DECISION IN THE LIGHT OF THE TRIBUNAL ORDER I N ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09. REGARDING REVENUES APPEAL, WE FIND THAT GROUND NO. 1 IS GENERAL AND GROUND NO.2 & 3 ARE REGARDING COMPUTATION OF DEDUCT ION U/S 10A OF THE IT ACT WHICH IS COVERED IN FAVOUR OF THE ASSESSEE B Y THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE O F M/S TATA ELXSI LTD., AS REPORTED IN 349 ITR 98 AND RESPECTFULLY FO LLOWING THE SAME, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAI NST THE REVENUE AND ACCORDINGLY, GROUND NO.2 & 3 OF THE REVENUES APPEA L ARE REJECTED. GROUND NO.4 OF THE REVENUES APPEAL IS REGARDING MA M AND WE HAVE SEEN THAT IT IS HELD BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09 THAT TNMM IS THE MOST APPRO PRIATE METHOD AND THEREFORE, WE ALLOW THIS GROUND OF THE REVENUE AND HOLD THAT THE ORDER OF THE LD.CIT(A) IN DIRECTING THE AO TO RECONSIDER AS TO WHETHER THE CUP METHOD IS THE MOST APPROPRIATE METHOD TO DETERMINE THE ALP INSTEAD OF TNMM AS PER THE TPO IS NOT SUSTAINABLE. WE HOLD THA T IN THE PRESENT CASE, THE TNMM IS THE MOST APPROPRIATE METHOD. ACC ORDINGLY, GROUND BNO.4 OF THE REVENUE IS ALLOWED. IT(TP)A NOS.1393 & 1364 (BANG)2013 6 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED FOR STATISTICAL PURPOSES WHEREAS THE APPEAL OF THE REVE NUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (SUNIL KUMAR YADAV) (A. K. GARODIA) JUDICAL MEMBER ACCOUNTANT MEMBER BANGALORE: D A T E D : .07.2016 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 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 IT(TP)A NOS.1393 & 1364 (BANG)2013 7 . 10. DATE ON WHICH THE FILE GOES TO THE 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