M/s Bruno Computer Solutions & Software P. Ltd., Hyderabad V. Dy.CIT., Circle-1(3), Hyderabad

ITA 1486/HYD/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6617 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 19-04-2016
• Assessment Year: misc
• Appeal Filed On: 18-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J SRI KUMAR
• Assessee Lawyers: A V RAGHURAM
• Section: 143(3); 10B

Judgement Text

ITA NO 1486 OF 2014 BRUNO COMPUTER SOLUTIONS HYDERA BAD PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI P.MADHAVI DEVI, JUDICIAL MEMBER & SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.1486/HYD/2014 (ASSESSMENT YEAR: 2010-11) M/S. BRUNOS COMPUTER SOLUTIONS & SOFTWARE P. LTD HYDERABAD PAN: AABCB 5073 G VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(3) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI A.V. RAGHURAM FOR REVENUE : SHRI J. SRIKUMAR, DR DATE OF HEARING : 19.04.2016 DATE O F PRONOUNCEMENT : 29 .04.2016 O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2010-11. THIS APPEAL IS AGAINST THE ORDER OF THE CIT (A), ASSESSMENT ORD ER PASSED U/S 143(3) R.W.S. 144C(I) OF THE I.T. ACT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY WHICH IS ENGAGED IN THE BUSINESS OF RENDERING SOFTWARE DE VELOPMENT SERVICES, FILED ITS RETURN OF INCOME ON 17.09.2010 ADMITTING A TOTAL INCOME OF RS.38,907 AFTER CLAIMING EXEMPTION OF RS.1,48,32,522 U/S 10B OF THE ACT. DURING THE ASSES SMENT PROCEEDINGS U/S 143(3) OF THE I.T. ACT, AO OBSERVED THAT THE ASSESSEE HAS ENTERED INTO AN INTERNATIONAL TRANSACT ION WITH ITS AES AND THEREFORE, A REFERENCE WAS MADE TO THE TRAN SFER PRICING OFFICER (IN SHORT TPO) U/S 92CA OF THE ACT ON 24.09 .2008. THE TPO DETERMINED THE ADJUSTMENT TO BE MADE AT RS.57,8 0,615. AO ITA NO 1486 OF 2014 BRUNO COMPUTER SOLUTIONS HYDERA BAD PAGE 2 OF 5 THEREFORE, PROPOSED A DRAFT ASSESSMENT ORDER BRINGI NG THE SAME TO TAX. ASSESSEE PREFERRED ITS OBJECTIONS TO THE DR P AGAINST THE DRAFT ASSESSMENT ORDER. THE DRP REJECTED THE ASSESS EES OBJECTIONS AND IN CONSONANCE WITH THE DIRECTION OF THE DRP, FINAL ASSESSMENT ORDER IS PASSED AGAINST WHICH THE ASSESS EE IS IN APPEAL BEFORE US. THOUGH THE ASSESSEE HAS RAISED AS MANY AS SIX GROUNDS OF APPEAL, BOTH ON THE METHOD ADOPTED BY T HE TPO FOR DETERMINATION OF THE ALP AND ALSO ON THE COMPARABLE S SELECTED BY THE TPO, AT THE TIME OF HEARING, THE LEARNED COU NSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS MAINLY INTE RESTED IN GROUND NO.5, I.E EXCLUSION OF E-INFOCHIPS BANGALOR E LTD FROM THE FINAL LIST OF COMPARABLE AND SUBMITTED THAT IF THE SAID COMPANY IS EXCLUDED, THE MARGIN OF THE COMPARABLES WOULD FALL WITHIN THE +- 5% OF THE ASSESSEES MARGIN AND THERE FORE, OTHER GROUNDS NEED NO ADJUDICATION. TAKING THE SAME INTO CONSIDERATION, WE PROCEED TO ADJUDICATE GROUND NO.5 FIRST. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, THE ASSESSEE IS INTO THE ACTIVITY OF SOFTWARE DEVELOPMENT, PROVI DING SERVICES TO ITS AE, FROM WHICH THE ASSESSEE HAS EARNED A MARGIN OF 15.01% BY ADOPTING TNMM METHOD. HE SUBMITTED THAT THE TPO HAS ADOPTED HIS OWN COMPARABLES WHICH INCLUDE E-INFOCHI PS, BANGALORE. HE HAS DRAWN OUR ATTENTION TO PAGE 31 OF THE T.P. ORDER WHEREIN ASSESSEES OBJECTION TO THE SAID COMP ANY BEING TAKEN AS COMPARABLE HAS BEEN REPRODUCED BY THE TPO. ASSESSEE CONTENTED THAT THIS COMPANY IS INTO DIVERSIFIED BUS INESS AND HAS ABNORMAL HIGH MARGIN AND ALSO OWNS TANGIBLE AND NON -TANGIBLE ASSETS AND THEREFORE, IS NOT COMPARABLE TO THE ASSE SSEE. THE TPO, HOWEVER, HAD REJECTED THE ASSESSEES CONTENTIO N AND INCLUDED E-INFOCHIPS BANGALORE AS A COMPARABLE. THE DRP ALSO CONFIRMED THE ORDER OF THE TPO. ITA NO 1486 OF 2014 BRUNO COMPUTER SOLUTIONS HYDERA BAD PAGE 3 OF 5 4. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT FOR THE VERY SAME A.Y I.E. 2010-11, THE TPO HAD TAKEN E-INFOCHIPS BANGALORE AS A COMPARABLE TO PEGA SYSTEMS INTERNATIONAL, WHICH IS ALSO INTO THE SIMILAR BUSIN ESS AS OF THE ASSESSEE, AND THIS TRIBUNAL IN ITA NO.1758/HYD/2-14 VIDE ORDER DATED 16.10.2015 IN THE CASE OF DETERMINATION OF AR MS LENGTH PRICE OF PEGA SYSTEMS INTERNATIONAL LTD HAS DIRECTE D THAT THE SAID COMPANY IS TO BE EXCLUDED FROM THE LIST OF COMPANIE S, AS, IT WAS EVIDENT FROM THE ANNUAL REPORT OF THE SAID COMPANY AND IT WAS BOTH IN IT AND ITES SERVICES AND IS NOT COMPARABLE TO THE ASSESSEE COMPANY THEREIN AS COMPARABLE ON FUNCTIONA L BASIS. FURTHER, IT WAS ALSO OBSERVED THAT THE SEGMENTAL DE TAILS ARE NOT AVAILABLE AND HENCE THE SAME CANNOT BE CONSIDERED A S A COMPARABLE TO THE ASSESSEE. A COPY OF THE SAID ORDE R IS FILED BEFORE US. 5. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE IS INTO THE BUSIN ESS OF PROVIDING SOFTWARE DEVELOPMENT SERVICES, TO ITS AE, WHILE TH E E-INFOCHIPS BANGALORE IS ENGAGED IN BOTH SOFTWARE DEVELOPMENT A S WELL AS ITES . THIS FACT HAS BEEN TAKEN INTO CONSIDERATION BY THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF PE GA SYSTEM INTERNATIONAL FOR THE VERY SAME A.Y 2010-11. IT HAS ALSO BEEN OBSERVED THAT THE SEGMENTAL DETAILS OF THIS COMPANY WERE NOT AVAILABLE AND THEREFORE, IN THE ABSENCE OF SEGMENTA L INFORMATION, THE SAME CANNOT BE TAKEN AS A COMPARABLE. IN THE CA SE BEFORE US ITA NO 1486 OF 2014 BRUNO COMPUTER SOLUTIONS HYDERA BAD PAGE 4 OF 5 WE THEREFORE, DIRECT THE AO/TPO TO EXCLUDE THE ABOV E COMPANY, WHILE WORKING OUT THE COMPARABILITY ANALYSIS FOR DE TERMINATION OF THE TP ADJUSTMENT. WE, THEREFORE, SET ASIDE THE ISS UE TO THE FILE OF THE TPO FOR RE-EXAMINATION AND IF IT IS FOUND THAT THE SEGMENTAL INFORMATION OF THIS COMPANY IS NOT AVAILABLE, THEN WE DIRECT THAT THE SAME CANNOT BE CONSIDERED AS A COMPARABLE. HOWE VER, IF THE SEGMENTAL DETAILS ARE AVAILABLE, THEN THE AO SHALL TAKE ONLY THE SEGMENTAIL DETAILS OF SOFTWARE DEVELOPMENT SERVICES INTO CONSIDERATION FOR DETERMINATION OF THE ALP. GROUND NO.5 IS ACCORDINGLY SET ASIDE TO THE FILE OF THE TPO FOR RE -DETERMINATION OF ALP IN ACCORDANCE WITH OUR DIRECTION ABOVE. THEREFO RE, GROUND NO.5 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES . 7. IN VIEW OF OUR DECISION IN GROUND NO.5 ABOVE, TH E OTHER GROUNDS OF APPEAL BECOME ACADEMIC. AS ADMITTEDLY, A CCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE THE MARGIN OF THE ASSESSEE WOULD BE WITHIN +-5% OF THE AVERAGE MARGIN OF THE C OMPARABLE COMPANIES, IF THE ABOVE COMPANY IS EXCLUDED, WE DO NOT SEE ANY REASON TO ADJUDICATE OTHER GROUNDS OF APPEAL AT THI S STAGE AND OTHER GROUNDS ARE ACCORDINGLY REJECTED. 7. IN THE RESULT, ASSESSEES APPEAL IS TREATED AS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH APRIL, 2016. S D/ - S D/ - (S. RIFAUR RAHMAN) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 29 TH APRIL, 2016. ITA NO 1486 OF 2014 BRUNO COMPUTER SOLUTIONS HYDERA BAD PAGE 5 OF 5 VNODAN/SPS COPY TO: 1. S/SHRI L.VASANTKUMAR/A.V. RAGHURAM, ADVOCATES, 610 BABUKHAN ESTATE, BASHEERBAGH, HYDERABAD 500001 2. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(3) HYD ERABAD 3. THE DISPUTE RESOLUTION PANEL. HYDERABAD 4. CIT-I, HYDERABAD 5. DIRECTOR OF INCOME TAX (IT & TP) HYDERABAD 6. THE DR, ITAT, HYDERABAD 7. GUARD FILE BY ORDER