Appeal details
Counselvise Citation
[2018] 125 COUNSELVISE.COM (IT) 1653 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 9 month(s) 18 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
31-08-2018
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
B
Next Hearing Date
13-02-2018
Assessment Year
2007-2008
Appeal Filed On
12-11-2015
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKARA RAO , AM . / ITA NO. 1455 /P U N/201 5 / ASSESSMENT YEAR : 2007 - 08 AMDOCS DEVELOPMENT CENTRE INDIA LLP, (FORMERLY KNOWN AS AMDOCS DEVELOPMENT CENTRE INDIA PRIVATE LIMITED WHICH WAS THE LEGAL SUCCESSOR TO AMDOCS BUS I N E SS SERVICES PRIVATE LIMI TED) , CYBER CITY 2, 6 TH FLOOR, MAGARPATTA CITY, HADAPSAR, PUNE - 411028 PAN : ABHFA6017F . / APPELLANT VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1 (1), PUNE . / RESPONDENT . / ITA NO. 1486 / P U N/201 5 / ASSESSMENT YEAR : 2007 - 08 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(1), PUNE . / APPELLANT VS. AMDOCS DEVELOPMENT CENTRE INDIA PVT. LTD., (LEGAL SUCCESSOR TO AMDOCS BUSINESS SERVICES PVT. LTD.), 6 TH F LOOR, TOWER 2, CYBER CITY, MAGARPATTA, HADAPSAR, PUNE - 411013 PAN : A AECA5803G . / RESPONDENT A SSESSEE BY : SHRI DANESH BAFNA REVENUE BY : SHRI GAURAV BATHAM / DATE OF HEARING : 2 7. 0 8 . 201 8 / DATE OF PRONOUNCEMENT: 31 . 0 8 .201 8 ITA NO S.1455 & 1486/PUN/2015 2 / ORDER PER SUSHMA CHOWLA, J M : TH E CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE ARE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 1 3 , PUNE, DATED 31.08.2015 RELATING TO ASSESSMENT YEAR 2007 - 08 AGAINST ORDER PASSED UNDER SECTION 1 43(3) R.W.S. 254 OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2. THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CON VENIENCE. 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - GROUND 1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ('LD. CIT(A),) HAS ERRED IN REMANDING THE MATTER BACK TO THE LEARNED ASSESSING OFFICER ('LD. AO)') FOR COMPUTING THE QUANTUM OF CAPACITY UTILISATION ADJUSTMENT. GROUND 2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN REJECTING THE METHODOLOGY ADOPTED BY THE APPELLANT FOR COMPUTING THE QUAN TUM OF CAPACITY UTILISATION ADJUSTMENT. THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. YOUR APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, MODIFY AND/OR SUBSTITUTE, AND TO WITHDRAW THE ABOVE GROUNDS OF APPEAL. 4. THE REVENUE HAS RAISED THE FOLLOW ING GROUNDS OF APPEAL: - 1. THE ORDER OF THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LD. CIT(A) HAS GROSSLY ERRED IN DIRECTING THE AO TO OBTAIN THE AVERAGE SPACE UTILIZATION PER S EAT OF THE COMPARABLE COMPANIES AND COMPARE IT WITH THE AVERAGE SPACE UTILIZATION PER SEAT OF THE APPELLANT COMPANY ALTHOUGH NO SUCH DIRECTION WAS GIVEN BY HON'BLE ITAT . ITA NO S.1455 & 1486/PUN/2015 3 3. THE LD. CIT(A) HAS GROSSLY ERRED IN STATING THAT AO MAY OBTAIN AVERAGE OF THE RATI O OF TOTAL SALARY REGISTERED BY THE COMPARABLE COMPANIES VIS A VIS THE SAME RATIO OF THE APPELLANT AND GRANT THE ECONOMIC ADJUSTMENT FOR BOTH THE DIFFERENCES AND DIFFERENCE IN EXCESS FIXED EXPENSES SUCH AS ELECTRICITY ETC ALTHOUGH NO SUCH DIRECTION WAS GIV EN BY HON'BLE ITAT. 4. FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING, THE ORDER OF THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) MAY BE VACATED AND THAT OF THE ASSESSING OFFICE BE RESTORED . 5. THE APPELLANT CRAVES TO ADD, AMEND, ALTER OR DELETE ANY OF THE GROUNDS OF APPEAL DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE HON'BLE TRIBUNAL. 5. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS ENGAGED IN ITES SERVICES. THE YEAR UNDER APPEAL I.E. ASSESSMENT YEAR 2007 - 08 WAS THE FIRST FULL YEAR OF OPERATIONS OF THE ASSESSEE AND HENCE IT HAD ASKED FOR CERTAIN ECONOMIC ADJUSTMENTS. THE TRIBUNAL IN ITA NO. 1412/PN/2011 VIDE ITS ORDER DATED 23.07.2012 HAD DIRECTED ASSESSING OFFICER TO ALLOW ADJUSTMENT ON ACCOUNT OF UNDER CAPACIT Y UTILIZATION AND REMANDED THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR COMPUTING THE ADJUSTMENT. THE ASSESSING OFFICER DENIED THE SAID ADJUSTMENT TO THE ASSESSEE. 6. THE COMMISSIONER OF INCOME TAX (APPEALS) AFTER REFERRING TO THE DIRECTIONS OF THE TRIBUNAL UNDER PARA NOTED THAT THE ASSESSING OFFICER/TPO HAD DENIED ADJUSTMENT ON ACCOUNT OF CAPACITY UTILIZATION. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE ACCEPTED THE ARGUMENTS OF THE ASSESSEE THAT THE TRIBUNAL HAD REMITTED THE ISSUE FOR CO MPUTING THE WORKING CAPITAL ADJUSTMENT. HENCE, THE ASSESSING OFFICER HAD TO COMPLY WITH THE SAME BUT IN THE ABSENCE OF THE DATA NOT BEING CORRECTLY FURNISHED BY THE ASSESSEE BEFORE THE TPO, HE COULD NOT COMPLY WITH THE DIRECTIONS OF THE TRIBUNAL. THEN VI DE PARA 2.3.7 AT PAGE 13 THE COMMISSIONER OF INCOME TAX (APPEALS) NOTED THAT THE COMPUTATION ITA NO S.1455 & 1486/PUN/2015 4 WAS FILED BY THE ASSESSEE , A CCORDING TO WHICH IT HAD PAID EXCESS RENT AND SALARY , WHICH DID NOT COMMENSURATE WITH SALES. HE FURTHER OBSERVED AS UNDER : 2.3.7 .. THE JUSTIFICATION OF EXCESS RENT IS THAT THE SPACE WAS HIRED IN EXCESS CONSIDERING THE POSSIBILITY OF FUTURE EXPANSION. SIMILARLY, CERTAIN EXCESS FIXED COSTS WERE INCURRED FOR THE HIGHER SPACE ETC. CONCEPTUALLY, I AM WITH THE APPELLANT AS THE APPELLANT NEED TO GRANTED CERTAIN ECONOMIC ADJUSTMENT FOR INCURRING UNPRODUCTIVE EXPENSES DURING ITS START - UP PHASE. HOWEVER, THE APPELLANT HAS AGAIN PROPOSED THE ADJUSTMENT DISREGARDING THE COMPARABLE COMPANIES' SITUATION ON THE SAME PARAMETERS. AS STATED, THE AP PELLANT'S APPROACH IS AGAINST THE PROVISIONS OF RULE 108(3) AND RULE 108(1)(E)(III), WHICH MANDATES ASCERTAINING AND QUANTIFYING THE DIFFERENCE BETWEEN THE TESTED PARTY AND COMPARABLE COMPANIES ON A GIVEN PARAMETER AND THEN MAKE THE ADJUSTMENT FOR SUCH D IFFERENCE. I FIND THAT THE APPELLANT HAS NOT CONSIDERED COMPARABLE COMPANIES AT ALL IN ITS ALTERNATIVE COMPUTATION. THEREFORE, I DO NOT ACCEPT THE REVISED COMPUTATION FURNISHED BY THE APPELLANT. 7 . THE COMMISSIONER OF INCOME TAX (APPEALS) THEN DIRECTED THE ASSESSING OFFICER TO OBTAIN AVERAGE OF THE RATIO OF TOTAL SALARY TO TOTAL SALES REGISTERED BY THE COMPARABLE COMPANIES VIS - - VIS THE SAME RATIO OF THE ASSESSEE AND GRANT THE ECONOMIC ADJUSTMENT FOR BOTH THE DIFFERENCES AS DIRECTED BY THE HONBLE TRIBU NAL . 8 . BOTH THE ASSESSEE AND THE REVENUE ARE IN APPEAL AGAINST THE DIRECTIONS OF THE COMMISSIONER OF INCOME TAX (APPEALS). THE ASSESSEE IS AGGRIEVED BY THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN REMITTING THE MATTER BACK TO THE FILE OF ASSESSI NG OFFICER FOR COMPUTING THE QUANTUM OF CAPACITY UTILIZATION ADJUSTMENTS. THE ASSESSEE ALSO AGGRIEVED BY THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN REJECTING METHODOLOGY ADOPTED BY THE ASSESSEE FOR COMPUTING THE QUANTUM OF CAPACITY UTILIZATION A DJUSTMENT. 9 . THE REVENUE IS IN APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN DIRECTING THE ASSESSING OFFICER TO OBTAIN THE AVERAGE SPACE UTILIZATION PER SEAT OF THE COMPARABLE COMPANIES AND COMPARE IT WITH THE ITA NO S.1455 & 1486/PUN/2015 5 AVERAGE SPACE UTILIZA TION PER SEAT OF THE ASSESSEE COMPANY. THE REVENUE IS ALSO AGGRIEVED BY THE ORDER OF COMMISSIONER OF INCOME TAX IN STATING THT ASSESSING OFFICER MAY OBTAIN AVERAGE OF THE RATIO OF TOTAL SALARY REGISTERED BY THE COMPARABLE COMPANIES VIS - - VIS THE SAME RATI O OF THE ASSESSEE AND GRANT THE ECONOMIC ADJUSTMENT FOR BOTH THE DIFFERENCES AND DIFFERENCE IN EXCESS FIXED EXPENSES SUCH AS ELECTRICITY ETC. 10 . THE LD. AR FOR THE ASSESSEE POINTED OUT THAT WHILE COMPUTING THE ECONOMIC ADJUSTMENTS IN THE HANDS OF THE AS SESSEE THERE IS NO DISPUTE WITH REGARD TO THE DEPRECIATION ADJUSTMENT. THERE IS DISPUTE ONLY WITH REFERENCE TO PERSONNEL COST ADJUSTMENT. HE FURTHER POINTED OUT THAT THE TOTAL REVENUE EARNED BY THE ASSESSEE DURING THE YEAR WAS RS. 13.90 CRORES ON WHICH PE RSONNEL COST WAS RS.9.47 CRORES. IN CASE PERSONNEL COST TO SALES RATIO IS WORKED OUT THEN THE SAME WORKS TO 68.14% WHICH WAS MUCH HIGHER THAN THE PERSONNEL COST/SALES RATIO OF COMPARABLES FINALLY SELECTED, WHICH WORKS OUT TO 36.72%. THE LD. AR FOR THE AS SESSEE POINTED OUT THAT SALARY TO BE CHARGE D AS PER PERCENTAGE OF COMPARABLES WOULD BE RS.5.10 CRORES AS AGAINST THE COST INCURRED OF RS.9.47 CRORES. HE THUS, STATED THAT IN CASE THE ADJUSTMENT IS MADE OF EXCESS COST BORN E BY THE ASSESSEE AT RS.4.36 CRORE S THAN THE ADJUSTED OP/TC WOULD WORK OUT TO 13.57%. THE MEAN MARGINS OF THE COMPARABLE COMPANIES IS 1 5 .57% AND HENCE THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WOULD BE WITHIN +/ - 5% RANGE AS PROVIDE D U/S. 92C(2) OF THE ACT AND NO ADJUSTMENT IS WARRANTED POST THE ECONOMIC ADJUSTMENT. 1 1 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND PLACED RELIANCE ON THE ORDER OF THE AUTHORITIES BELOW. ITA NO S.1455 & 1486/PUN/2015 6 1 2 . THE LD. AR FOR THE ASSESSEE IN REJOINDER POINTED OUT THAT THE ASSESSEES APPEAL IS FILED AGAINST THE DIRECTIONS OF COMMISSIONER OF INCOME TAX (APPEALS) IN REMITTING THE ISSUE BACK TO THE ASSESSING OFFICER. 1 3 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. THE LIMITED ISSUE WHICH ARISES IN THE PRESENT APPEAL IS CONSEQUENT TO THE DIRECTIONS OF TRIBUNAL IN ASSESSEES OWN CASE VIDE ORDER DATED 23.07.2012. THE TRIBUNAL HAD REMITTED THE MATTER BACK TO THE FILE OF ASSESSING OFFICER FOR COMPUTING THE ADJUSTMENTS ON ACCOUNT OF UNDER CAPACITY UTILIZATION. THE ASSESSING OFFICER/TPO DENIED THE SAME AS COMPLETE DAT A WAS NOT FURNISHED. HOWEVER, THE COMMISSIONER OF INCOME TAX (APPEALS) DIRECTED THE ASSESSING OFFICER TO COMPUTE THE ADJUSTMENT BY TAKING INTO ACCOUNT THE DIFFEREN CE IN SALARY COST TO SALES RATIO OF THE ASSESSEE VIS - - VIS COMPARABLE COMPANIES. THE ASSESSEE BEFORE US HAS FILED THE COMPUTATION OF AMOUNT OF ADJUSTMENT TO BE MADE ON ACCOUNT OF SALARY COST. AFTER TAKING THE PERCENTAGE OF PERSONNEL COST TO SALE RATIO OF COMPARABLES THE WORKING IS AS UNDER : PARTICUL ARS REFERENCE DATA FLAG AMOUNT (IN RS.) TOTAL INVOICING/SALES PG.178 OF PAPER BOOK [A] 139,031,479 PERSONAL COSTS OF ABSL WORKING NOTE 1 BELOW [B] 94,740,602 PERSONAL COSTS/SALES OF ABSL NA [C=B/A] 68.14% PERSONAL COSTS/SALES RATIO OF CO MPARABLES PG. 168 OF PAPER BOOK [D] 36.72% SALARY TO BE CHARGED AS PER % OF COMPARABLES NA [E=A*D] 51,054,688 ADJUSTMENT NA [F=B - E] 43,685,914 ITA NO S.1455 & 1486/PUN/2015 7 1 4 . THE BREAK UP OF PERSONNEL COST DEDUCTED BY THE ASSESSEE IS AS UNDER : PARTICULARS REFEREN CE AMOUNT (IN RS.) PERSONAL COST PG. 183 OF PAPER BOOK 86,042,213 TRAINING COSTS 2,103,173 RECRUITMENT COST 6,595,216 TOTAL 94,740,602 1 5 . THE ASSESSEE HAS ALSO FURNISHED THE DETAILS OF PERSONNEL COST/SALES RATIO OF COMPARABLES AND THE AVERAGE W ORKS OUT TO 36.72%. IN CASE THE PERSONNEL COST ADJUSTMENT IS ALLOWED TO THE ASSESSEE THE ADJUSTED OPERATING PROFIT WOULD WORK OUT AS UNDER: PARTICULARS PAPER BOOK P G. REF. REFERENCE AMOUNT (IN RS.) OPERATING REVENUE 178 [A] 13,90,31,479 TOTAL COSTS 17 8 20,23,72,661 LESS: NON - OPERATING EXPENSES AND ECONOMIC ADJUSTMENT FINANCIAL EXPENSES 178 - 2,236,395 PERSONAL COSTS ADJUSTMENT 167 ANNEXURE 1 - 43,685,914 DEPRECIATION ADJUSTMENT ON ACCOUNT OF EXCESS DEPRECIATION CHARGED VIS - A - VIS THE RATES PRESC RIBED UNDER THE COMPANIES ACT. (AS ALLOWED BY THE HON'BLE TRIBUNAL AND VERIFIED AND ALLOWED BY THE ASSESSING OFFICER AS WELL) 163 - 34,033,190 ADJUSTED OPERATING COSTS (TC) [B] 12,24,17,162 ADJUSTED OPERATING PROFIT (OP) [C=A - B] 1,66,14,318 ADJUSTED OP/TC [D=C/B] 13.57% 1 6 . AFTER ALLOWING THE PERSONNEL COST ADJUSTMENT, DEPRECIATION ADJUSTMENT AND THE NON - OPERATING EXPENSES I.E. FINANCIAL EXPENSES AS DEDUCTION OUT OF OPERATING REVENUE , T HE ADJUSTED OPERATING PROFIT WORKS OUT TO RS.1.66 CRORES. THE ADJUSTED OP/TC OF THE ASSESSEE THUS WORKS T O 13.57% AS AGAINST THE MEAN MARGINS OF THE COMPARABLES , WHICH HAS BEEN TAKEN BY THE ASSESSING OFFICER/TPO AT 15.57%. SINCE, THE ADJUSTED OPERATING MARGINS OF THE ASSESSEE ON ACCOUNT OF TRANSFER PRIC ING PROVISION ARE WITHIN THE RANGE OF +/ - 5% NO ADJUSTMENT IS WARRANTED IN THE HANDS OF THE ASSESSEE. ACCORDINGLY, THE ITA NO S.1455 & 1486/PUN/2015 8 ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION MADE ON ACCOUNT OF TP ADJUSTMENTS. THUS, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE DISMISSED AND THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE PARTLY ALLOWED. 1 7 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED AND THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER P RONOUNCED ON THIS 31 ST DAY OF AUGUST, 201 8 . SD/ - SD/ - ( D.KARUNAKARA RAO ) (SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 31 ST AUGUST, 201 8 . R K /GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / TH E APPELLANT ; 2. / THE RESPONDENT; 3. 4 THE COMMISSIONER OF INCOME TAX (APPEALS) - 1 3 , PUNE; . THE PR. C.I.T. 1, PUNE; 5 . , , / DR B , ITAT, PUNE; 6 . / GUARD FILE. / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE
