Tieto I.T. Services India Pvt. Ltd., , Pune V. Deputy Commissioner of Income-tax., Pune

ITA 1398/PUN/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9410 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 17-01-2018
• Assessment Year: 2010-2011
• Appeal Filed On: 26-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DINESH SUPEKAR
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Wholly owned subsidiary
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO . 1398 /P U N/201 5 / ASSESSMENT YEAR : 20 1 0 - 11 TIETO IT SERVICES INDIA PRIVATE LIMITED, [SUCCESSOR OF TIETO SOFTWARE TECHNOLOGIES LIMITED W.E.F. 1 ST APRIL, 2015] , WING 1, CLUSTER D, EON FREE ZONE, MIDC, KHARADI KNOWLEDGE PARK, PUNE 411014 PAN : AA ACF3424C ....... / APPELLANT / V/S. DY. COMMISSIONER OF INCOME TAX, CIRCLE 7, PUNE / RESPONDENT ASSESSEE BY : S HRI DINESH SUPEKAR REVENUE BY : SHRI A CHAL SHARMA / DATE OF HEARING : 17 - 01 - 2018 / DATE OF PRONOUNCEMENT : 19 - 01 - 201 8 / ORDER PER VIKAS AWASTHY, JM : TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMI SSIONER OF INCOME TAX (APPEALS) - 13, PUNE DATED 31 - 08 - 2015 FOR THE ASSESSMENT YEAR 2010 - 11. 2 ITA NO .1398/PUN/2015, A.Y. 2010 - 11 2. SHRI DINESH SUPEKAR APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF TIETOENATOR DEUTSCHLAND GMBH, GERMANY . THE ASSESSEE IS A CAPTIVE SERVICE PROVIDER AND IS ENGAGED IN SOFTWARE DEVELOPMENT SERVICES FOR TIETO GROU P OF COMPANIES. DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE HAD ENTERED INTO FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES (AES) : S. NO. INTERNATIONAL TRANSACTIONS AMOUNT (IN RS.) 1 PROVISION OF SOFTWARE DEVELOPMENT SERVICES 85,27,75,121 2 ALLOCATION OF MANAGEMENT SUPPORT SERVICES COST (MSS) 3,15,52,252 3 PAYMENT FOR SOFTWARE LICENSES 3,63,43,474 4 INTEREST PAYMENT ON EXTERNAL COMMERCIAL BORROWINGS (ECB) 13,06,448 5 REIMBURSEMENT OF EXPENSES 38,30,819 6 RECOVERY OF EXPENSES 14,94,14,445 2.1 THE LD. AR SUBMITTED THAT THE PARENT COMPANY OF TIETO GROUP HAS SET UP A CENTRALIZED MECHANISM FOR PROVISION OF MANAGEMENT SUPPORT SERVICES (MSS) TO ALL THE GROUP ENTITIES. THE PARENT COMPANY HAS FORMED A CENTRAL MANAGEMENT TEAM OF HIGHLY QUALIFIED PERSONNEL WITH WIDE EXPERTISE IN DIVERSE FIELDS. THE ASSESSEE HAS ALSO RECEIVED SERVICES FROM THE EXPERT PANEL SET UP BY THE PARENT COMPANY FOR RENDERING SOFTWARE DEVELOPMENT SERVICES TO ITS AES. THE COSTS INCURRED IN PROVIDING THE SUPPORT ARE ALLOCATED TO THE GROUP ENTITIES. THE ASSESSEE IS FOLLOWING AN AGGREGATION APPROACH AND AS SUCH MSS TRANSACTIONS ARE INTEGRATED WITH PROVISION OF SOFTWARE DEVELOPMENT SERVICES. DURING THE COURSE OF AS SESSMENT PROCEEDINGS, THE TRANSFER PRICING OFFICER (TPO) ACCEPTED ALL INTERNATIONAL 3 ITA NO .1398/PUN/2015, A.Y. 2010 - 11 TRANSACTIONS OF THE ASSESSEE TO BE AT ARMS LENGTH PRICE (ALP) EXCEPT PAYMENT FOR MSS. THE TPO VIDE ORDER DATED 30 - 01 - 2014 DETERMINED THE ALP OF MSS TO BE NIL . BASED ON THE FINDINGS OF TPO , THE ASSESSING OFFICER FINALIZED THE ASSESSMENT ORDER DATED 26 - 05 - 2014 MAKING ADDITION OF RS.3,15,52,252/ - ON ACCOUNT OF INTERNATIONAL TRANSACTIONS ADJUSTMENTS . AGGRIEVED BY THE ASSESSMENT ORDER PASSED U/S. 144C(1) R.W.S. 143(3) O F T HE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ), THE ASSESSEE FILED APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) REJECTED THE CONTENTIONS OF ASSESSEE AND CONFIRMED THE ADDITIONS IN RESPECT OF MSS FEE PAID BY THE ASSESSEE TO ITS AES. 2.2 THE LD. AR SUBMITTED THAT IN THE ASSESSMENT YEARS 2008 - 09 AND 2009 - 10 MSS FEE PAID BY THE ASSESSEE TO ITS AE WERE ACCEPTED BY THE TPO TO BE AT ARMS LENGTH. THE LD. AR FURNISHED COPY OF THE ORDER OF TPO DA TED 24 - 10 - 2011 FOR ASSESSMENT YEAR 2008 - 09 AND ORDER DATED 23 - 01 - 2013 FOR ASSESSMENT YEAR 2009 - 10 AT THE TIME OF HEARING OF APPEAL. THE LD. AR FURTHER SUBMITTED THAT IN THE SUBSEQUENT ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2011 - 12 THE TPO HAD MADE SIMILAR D ISALLOWANCE OF ENTIRE MSS FEE. HOWEVER, THE DISPUTE RESOLUTION PANEL (DRP) DELETED THE ENTIRE ADDITION. THE LD. AR REFERRED TO THE DIRECTIONS OF DRP DATED 15 - 12 - 2015 FOR ASSESSMENT YEAR 2011 - 12 AT PAGES 674 TO 701 OF THE PAPER BOOK (RELEVANT PAGE 689, PA RA 2.15). THE LD. AR FURTHER SUBMITTED THAT IN ASSESSMENT YEAR 2012 - 13 AGAIN THE TPO ACCEPTED TRANSACTION VALUE OF MSS FEE PAID BY THE ASSESSEE TO ITS AE TO BE AT ARMS LENGTH. REFERENCE WAS MADE TO ORDER 4 ITA NO .1398/PUN/2015, A.Y. 2010 - 11 OF TPO DATED 29 - 01 - 2016 IN ASSESSMENT YEAR 2012 - 1 3 AT PAGE 705 OF THE PAPER BOOK. 2.3 THE LD. AR SUBMITTED THAT THE ASSESSEE HAS ENTERED INTO A DVANCE P RICING A GREEMENT (APA) U/S. 92CC OF THE ACT WITH CBDT ON 18 - 07 - 2016 FOR THE ASSESSMENT YEAR 2015 - 16 . THE SAID APA ALSO APPLIE S TO FOUR ROLLBACK YEARS STARTING FROM ASSESSMENT YEARS 2011 - 12 TO 2014 - 15. THE LD. AR SUBMITTED THAT THE NATURE OF TRANSACTIONS IN THE ASSESSMENT YEAR UNDER APPEAL ARE IDENTICAL TO THE ONE THAT ARE COVERED UNDER APA AGREEMENT. THEREFORE, THE TP ADJUSTMEN T IN RESPECT OF MSS SHOULD BE MADE IN ACCORDANCE WITH THE SAID AGREEMENT. THE LD. AR PLACED ON RECORD COPY OF THE APA DATED 18 - 07 - 2016. TO SUPPORT HIS SUBMISSIONS THAT APA HAS A PERSUASIVE VALUE FOR THE YEARS NOT COVERED BY APA , THE LD. AR PLACED RELIANC E ON THE FOLLOWING DECISIONS : I . AXA TECHNOLOGIES SHARED SERVICES PVT. LTD. VS. DY. COMMISSIONER OF INCOME TAX IN ITA NO. 659/BANG/2012 FOR ASSESSMENT YEAR 2007 - 08 DECIDED ON 25 - 07 - 2016; II . WARBURG PINCUS INDIA PVT. LTD. VS. ASSTT. COMMISSIONER OF INCOME TAX IN ITA NO. 6981/MUM/2012 FOR ASSESSMENT YEAR 2008 - 09 DECIDED ON 13 - 01 - 2017; III . RANBAXY LABORATORIES LTD. VS. ACIT IN ITA NO. 196/DEL/2013 FOR ASSESSMENT YEAR 2008 - 09 DECIDED ON 25 - 04 - 2016; IV . PR. COMMISSIONER OF INCOME TAX VS. AMERIPRISE INDIA PVT. LTD. IN ITA 206 /2016 DECIDED ON 23 - 03 - 2016 BY HONBLE DELHI HIGH COURT . 3. SHRI ACHAL SHARMA REPRESENTING THE DEPARTMENT VEHEMENTLY SUPPORT ING THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) 5 ITA NO .1398/PUN/2015, A.Y. 2010 - 11 SUBMITTED THAT THE ASSESSEE HAS FAILED TO SHOW THE SERVICES RENDERED BY AE S . E XCEPT FOR BAL D ASSERTIONS , THE ASSESSEE HAS NOT FILED ANY COGENT EVIDENCE TO SUPPORT HIS CONTENTIONS TH AT MSS WERE RENDERED BY ITS AE AND COMMENSURATE BENEFIT WAS DERIVED BY THE ASSESSEE. THE LD. DR FURTHER CONTENDED THAT IN THE ASSESSMENT YEAR S WHER E THE ASSESSEE WAS ABLE TO SHOW THAT MSS WERE IN FACT RECEIVED BY THE ASSESSEE FROM AE , THE PAYMENT OF MSS FEE HAS BEEN ALLOWED. 4. W E HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW . THE ASSESSEE IN APPEAL IS PRIMARILY AGGRIEVED AGAINST TP ADJUSTMENT OF RS.3,15,52,252/ - IN RESPECT OF PAYMENT OF MSS FEE PAID BY THE ASSESSEE TO ITS AE. THE CONTENTIONS OF THE ASSESSEE IS THAT IN THE PAST AS WELL IN THE SUBSEQUENT ASSESSMENT YEAR S PAYMENT OF MSS FEE BY THE ASSESSEE TO ITS AE HAS BEEN ACCEPTED BY THE TPO /DRP AT ARMS LENGTH. IT IS ONLY FOR THE ASSESSMENT YEAR UNDER APPEAL THAT THE TPO HAS RAISED DOUBT OVER RENDERING OF SUCH SERVICES BY AE TO ASSESSEE. THE LD. AR IN SUPPORT OF HIS CONTENTION HAS FURNISHED COPIES OF ORDER OF TPO PASSED U/S. 92CA(3) OF THE ACT IN THE ASSESSMENT YEARS 2008 - 09, 2009 - 10 AND 2012 - 13. THE ASSESSEE HAS ALSO FILED A COPY OF DIRECTIONS OF DRP FOR ASSESSMENT YEAR 2010 - 11 WHEREIN THE ADJUSTMENT MADE BY THE TPO ON ACCOUNT OF MSS HAS BEEN DELETED. BY MAKING REFERENCE TO ALL ABOVE ORDERS, THE LD. AR HAS PRAYED FOR DELETING THE ADDITION ON THE PRINCIPLES OF CONSISTENCY. THE LD. AR HAS ALSO BROUGHT TO OUR NOTICE THAT THE ASSESSEE HAS ENTERED INTO APA WITH THE B OAR D FOR ASSESSMENT YEAR 2015 - 16. A PERUSAL OF THE AGREEMENT REVEAL THAT THE SAME WOULD ALSO APPLY TO ROLLBACK YEARS 6 ITA NO .1398/PUN/2015, A.Y. 2010 - 11 STARTING FROM ASSESSMENT YEAR 2011 - 12 TO 2014 - 15. AS PER CLAUSE 3 OF THE AGREEMENT IT COVERS FOLLOWING INTERNATIONAL TRANSACTIONS : THE INTERNATIONAL TRANSACTIONS OF PROVISION OF SOFTWARE SERVICES, ALLOCATION OF MANAGEMENT AND LICENCE COST, TRADE ADVANCES, REIMBURSEMENT OF EXPENSES AND RECOVERY OF EXPENSES BETWEEN THE APPLICANT AND ITS AES, AS DESCRIBED IN APPENDIX I, SHALL BE THE COV ERED TRANSACTIONS FOR THE AGREEMENT AND THIS AGREEMENT, SHALL APPLY TO THESE INTERNATIONAL TRANSACTIONS. 5. THE LD. AR OF THE ASSESSEE HAS STATED AT THE B AR THAT THE INTERNATIONAL TRANSACTIONS CARRIED OUT BY THE ASSESSEE IN THE ASSESSMENT YEAR UNDER APPEAL ARE SIMILAR TO THE ONE COVERED BY APA. IN VIEW OF THE STATEMENT MADE BY LD. AR AND UNDISPUTED FACT THAT THE ASSESSEE HAS ENTERED INTO APA WITH THE B OARD WE DEEM IT APPROPRIATE TO REMIT THIS FILE BACK TO COMMISSIONER OF INCOME TAX (APPEALS) FOR RE - E XAMINATION OF THE ISSUE IN THE LIGHT OF TERMS AND CONDITIONS OF THE APA , SUBJECT TO VERIFICATION THAT THE INTERNATIONAL TRANSACTIONS IN DISPUTE IN THE ASSESSMENT YEAR UNDER APPEAL ARE SIMILAR TO THE TRANSACTIONS COVERED BY APA. 6. NOW, THE QUESTION ARIS ES, WHETHER THE TERMS AND CONDITIONS SET OUT IN APA CAN BE APPLIED IN THE ASSESSMENT YEAR WHICH IS NOT PART OF APA . WE FIND THAT THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. ABICOR BINZEL PRODUCTION (INDIA) PVT. LTD. VS. DY. COMMISSIONER OF I NCOME TAX IN ITA NO. 139/PN/2014 FOR ASSESSMENT YEAR 2009 - 10 DECIDED ON 12 - 08 - 2016 , A FTER TAKING INTO CONSIDERATION APA HAS REMITTED THE ISSUE BACK TO THE FILE OF TPO TO DECIDE THE ISSUE AFRESH, IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE APA. THE RELEVANT EXTRACT OF THE FINDINGS OF TRIBUNAL IN THE SAID CASE ARE AS UNDER : 8. THE PERUSAL OF GROUNDS OF APPEAL REFLECTS THAT THE ASSESSEE IS IN APPEAL ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT MADE IN THE HANDS OF ASSESSEE. NO 7 ITA NO .1398/PUN/2015, A.Y. 2010 - 11 OTHER GROUNDS OF APPEAL HA VE BEEN RAISED BY THE ASSESSEE OTHER THAN TRANSFER PRICING ADJUSTMENT. THE ASSESSEE HAS MADE A REQUEST SINCE IT HAD ENTERED INTO ADVANCE PRICING AGREEMENT (APA) WITH CBDT COVERING NINE YEARS FROM ASSESSMENT YEARS 2010 - 11 TO 2013 - 14 UNDER ROLL BACK PROVISIO NS AND FROM ASSESSMENT YEARS 2014 - 15 TO 2018 - 19 BEING THE BALANCE APA PERIOD, SIMILAR PROPOSITION SHOULD BE APPLIED TO THE YEAR UNDER CONSIDERATION ALSO AS THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES IN THE IN STANT ASSESSMENT YEAR ARE IDENTICAL TO THE INTERNATIONAL TRANSACTIONS WHICH WERE PART OF APA PROCEEDINGS. THE DCIT(TP) 1(1), PUNE HAS SUBMITTED A REPORT DATED 13.07.2016, IN WHICH IT HAS BEEN STATED THAT THE INTERNATIONAL TRANSACTIONS DURING THE ASSESSMENT YEAR 2009 - 10 WERE SIMILAR TO THE INTERNATIONAL TRANSACTIONS ENTERED DURING ASSESSMENT YEARS 2010 - 11 TO 2015 - 16. IN VIEW THEREOF, WHERE THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES ARE SIMILAR TO THE INTERNATIO NAL TRANSACTIONS IN THE SUCCEEDING YEARS, THEN WHERE THE APA PROCEEDINGS HAVE BEEN CARRIED OUT IN THE CASE OF ASSESSEE AND THE BOARD AND THE ASSESSEE HAVE COME TO A SETTLEMENT VIS - - VIS THE MANNER OF COMPUTATION OF ARM'S LENGTH PRICE IN THE CASE OF ASSESSE E IN RELATION TO THE INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISES, WE DEEM IT FIT TO RESTORE THIS ISSUE ALSO BACK TO THE FILE OF ASSESSING OFFICER, WHO SHALL CONSIDER THE PLEA OF ASSESSEE AND SHALL AFTER OBTAINING REPORT FROM THE TPO IN THIS R EGARD, DECIDE THE ISSUE IN ACCORDANCE WITH LAW. REASONABLE OPPORTUNITY OF BEING HEARD SHALL BE AFFORDED TO THE ASSESSEE WHILE DECIDING THE ISSUE. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED. IN RESPECT OF THE BALANCE ADDITIONS, NO SPECIF IC GROUND OF APPEAL HAS BEEN RAISED NOR ANY ARGUMENTS HAVE BEEN MADE BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE, HENCE THE SAME ARE NOT DISTURBED. THE ASSESSEE HAS ALSO DRAWN OUR ATTENTION TO VARIOUS DECISIONS TO CONTEND THAT APA HAS PERSUASIVE VALUE FOR THE YEAR NOT COVERED BY APA AND THE R EVENUE A UTHORITY S CANNOT TAKE DIFFERENT VIEW FOR THE YEARS COVERED IN APA VIS - - VIS NOT COVERED BY THE SAID AGREEMENT. THUS, THERE IS NO IMPEDIMENT ON DEPARTMENT IN APPLYING THE TERMS AND CONDITI ONS OF APA WHILE CONSIDERING INTERNATIONAL TRANSACTIONS IN THE ASSESSMENT YEAR NOT COVERED BY THE APA, BUT SUBJECT TO THE CONDITION THAT THE NATURE OF INTERNATIONAL TRANSACTIONS SHOULD BE IDENTICAL IN BOTH THE SITUATIONS. 7. IN VIEW OF THE FACT THAT THE ASSESSEE HAS ENTERED INTO APA WITH THE B OARD, FOR THE SUBSEQUENT ASSESSMENT YEAR S , WITHOUT COMMENTING ON THE MERITS OF THE ADJUSTMENT MADE , WE DEEM IT APPROPRIATE TO REMIT THIS FILE 8 ITA NO .1398/PUN/2015, A.Y. 2010 - 11 BACK TO COMMISSIONER OF INCOME TAX (APPEALS) TO RE - ADJUDICATE THE ISSUE, IN ACCORDANCE WITH THE AFORESAID DIRECTIONS. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 8. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON FRIDAY, THE 19 TH DAY OF JANUARY, 201 8 . SD/ - SD/ - ( . /D. KARUNAKARA RAO ) ( / VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 19 TH JANUARY, 2018 RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 13, PUNE 4. / THE CIT( IT/TP), PUNE 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. / / // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE