M/s Infineon Technologies India Private Limited , Bangalore V. Deputy Commissioner of Income Tax Circle-3(1)(1), Bangalore

ITA 159/BANG/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3658 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 28-01-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: K R VASUDEVAN; VIDYA KURUP
• Keywords: Depreciation; Transfer pricing; International transaction; Revenue expenditure
• Section: 143(3); 144C; 13; 92CA; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES C BENCH: BANGALORE BEFORE SHRI A.K. GARODIA , ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NO. 159 /BANG/201 9 (ASSESSMENT YEAR: 20 06 - 07 ) M/S. INFINEON TECHNOLOGIES INDIA PVT. LTD., 9 TH FLOOR, PRESTIGE THIRULAKSHMI, NO.11, MG ROAD, BANGALORE - 560 001 .APPELLANT PAN AABCS 6967N VS. DY . COMMISSIONER OF INCOME TAX, CIRCLE 3(1)(1), BANGALORE. RESPONDENT. ASSESSEE BY: SHRI K.R. VASUDEVAN, & SMT VIDYA K URUP ADVOCATE. REVENUE BY: SHRI PRADEEP KUMAR, CIT (D.R) DATE OF HEARING : 26.02 .20 20 DATE OF PRONOUNCEMENT : 04 .03 .20 20 O R D E R PER SHRI PAVAN KUMAR GADALE, JM : THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDER UNDER SECTION 143(3) R.W.S. 144C R.W.S. 254 OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') PASSED IN PURSUANCE TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PAN EL (DRP) ORDER UNDER SECTION 144C(5) DT.25.09.2018. 2 ITA NO.159/BANG/2019 2. AT THE TIME OF HEARING, THE LEARNED AUTHORIZED REPRESENTATIVE HAS PRESSED GROUNDS OF APPEAL NOS.14, 16 & 17 ONLY AND MADE ENDORSEMENT IN THE APPEAL MEMO. HENCE, OTHER GROUNDS OF APPEAL ARE NO T PRESSED AND TREATED AS WITHDRAWN AND DISMISSED. THE EFFECTIVE GROUNDS OF APPEAL ARE AS UNDER: 3 ITA NO.159/BANG/2019 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT SERVICES OF ELECTRIC INTEGRAT ED CIRCUIT S TO ITS PARENT COMPANY AND FILED THE RETURN OF INCOME FOR THE ASST. YEAR 2006 - 07 ON 30.11.20 0 6 WITH TOTAL INCOME OF RS.24,52,123 / - . SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS INTERNATIONAL TRANSACTIONS OF SOFTWARE DEVELOPMENT SERVICES, HENCE WITH THE PRIOR APPROVAL OF CIT, BANGALORE - 1, THE MATTER WAS REFERRED TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINATION OF ARMS LENGTH PRICE (ALP) AND THE TPO HAS PASSED ORDER UNDER SECTION 92CA OF THE ACT DT.29.10.2009 WITH TRANSFER PRICING ADJUSTMENT OF RS. 13,57,27,982 / - AND THE DRAFT ASSESSMENT ORDER WAS PASSED UNDER SECTION 143(3) R.W.S. 144C OF THE ACT DT.24.12.2009. AGGRIEVED BY THE DRAFT ASSESSMENT ORDER, THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP AND THE DRP HAS PASSED THE ORDER UNDER SECTION 144C(5) R.W.S. 144C(8) OF THE ACT DT.20.09 .2010 WITH DIRECTIONS TO TPO, IN RESPECT OF M/S. MEGASOFT LIMITED WHICH HAS ABNORMAL FLUCTUATION OF MARGINS THEREFORE TO BE REJECTED AS COMPARABLE COMPANY AND REJECTED THE OTHER OBJECTIONS 4 ITA NO.159/BANG/2019 OF THE ASSESSEE . THE FINAL ASSESSMENT ORDER WAS PASSED UNDER SECTION 143(3) R.W.S. 144C OF THE ACT DT.11.10.2010 WITH TOTAL INCOME INCLUDING TRANSFER PRICING ADJUSTMENT. AGGRIEVED BY THE FINAL ASSESSMENT ORDER, THE ASSESSEE HAS FILED AN APPEAL WITH THE HON'BLE ITAT , BANGALORE. THE ITAT BY ORDER DT.3.11.2016, REMITTED THE ENTIRE DISPUTED ISSUES TO THE FILE OF ASSESSING OFFICER ON TRANSFER PRICING ADJUSTMENTS AND OTHER ISSSUES FOR FRESH CONSIDERATION AND TO AFFORD AN OPPORTUN ITY OF BEING HEARD TO THE ASSESSEE. AS PER THE DIRECTIONS, THE ASSES SEE HAS FILE D SUBMISSIONS TO EXCLUDE COMPARABLES TATA ELXSI LIMITED, FLEXTRONICS, R.R. INTERNATIONAL LIMITED, KALS INFORMATION SYSTEMS LTD., INFOSYS LIMITED, ACCEL TRANSMATICS LIMITED A ND MEGA SOFT LIMITED AND SOUGHT FOR MARKED RISK ADJUSTMENTS. WHER E AS THE TPO HAS SELECTED THE FINAL LIST OF COMPARABLES AS UNDER : 5 ITA NO.159/BANG/2019 4. TH E TPO COMPUTED THE ALP IN ORDER AT PAGE 6 PARA 4 AS UNDER : 5. THE TPO HAS PASSED THE ORDER UNDER SECTION 92CA R.W.S. 254 OF THE ACT DT.20.10.2017 AND THE DRAFT ASSESSMENT ORDER WAS PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) R.W.S. 144C R.W. 254 OF THE ACT ALONG WITH TRANSFER PRICING ADJUSTMENT AND THE ADDI TION IN RESP ECT OF SOFTWARE EXPENDITURE AND ASSESSED THE 6 ITA NO.159/BANG/2019 TOTAL INCOME OF RS.13,7 6,81,822 . AGGRIEVED BY THE ORDER, THE ASSESSEE HAS FILED OBJECTIONS IN FORM 35A BEFORE THE DRP , WHEREAS THE DRP HAS PASSED THE ORDER UNDER SECTION 144C ( 5) OF THE ACT DT.25.09 .2019 . F URTHER , THE FINAL ASSESSMENT ORDER WAS PASSED UNDER SECTION 143(3) R.W.S. 144C OF THE ACT WITH TOTAL INCOME OF RS.9 , 86,91,148 / - AFTER CONSIDERING THE RELIEF GRANTED BY THE DRP IN TRANSFER PRICING ADJUSTMENT. AGGRIEVED BY THE ORDER, THE ASSESSEE HA S FILED AN APPEAL BEFORE THE TRIBUNAL. 6. AT THE TIME OF HEARING, THE LEARN ED AUTHORIZED REPRESENTATIVE HAS ARGUED ONLY GROUND NOS.14, 16 & 17. WHEREAS GROUND NO.14 RELATES TO EXCLUSION OF COMPARABLES IN THE SOFTWARE DEVELOPMENT SEGMENT AND LD. AR PRAYED FOR EXCLUSION OF THE FOLLOWING SIX COMPARABLES A) INFOSYS LIMITED B) TATA ELXSI LIMITED C) KALS INFORMATION SYSTEMS LIMITED D) PERSISTENT SYSTEMS LIMITED E) AZTEC SOFT LIMITED F) BODHTREE CONSULTING LIMITED THE LEARNED DEPARTMENTAL REPRE SENTATIVE SUPPORTED THE ORDERS OF LOWER AUTHORITIES AND FILED WRITTEN SUBMISSIONS. 7 ITA NO.159/BANG/2019 7. THE LEARNED AUTHORIZED REPRESE NTATIVE FILED CHART AND PAPER BOOK TO SUPPORT THE SUBMISSIONS ON THE COMPARABLES TO BE EXCLUDED ON THE FUNCTIONAL DISSIMILARITY AND TURN OVER FILTER . A) INFOSYS LIMITED - THE COMPANY .S TURNOVER IS RS.9,028 CRORES AND HAS A BRAND VALUE AND ALSO ENGAGED IN DIVERSIFIED OPERATIONS APART FROM SOFTWARE DEVELOPMENT SERVICES, R&D ACTIVITIES AND FAILS THE UPPEER TURNOVER FILTER. B) AZTEC SOFTWARE LIMITED - THE COMPANY SALES ARE RS.128.61 CRORES AND FAILS THE RPT FILTER AND FUNCTIONALLY DISSIMILAR . C) KALS INFORMATION SYSTEMS LIMITED - THE COMPANY SALES TURNOVER IS RS.1.96 CRORES AND IS F UNCTIONALLY DIFFERENT AND ENGAGED IN SOFTWARE PRODUCTS AND TRAINING APART F ROM PROVISION OF SOFTWARE DEVELOPMENT SERVICES. D ) PERSISTENT SYSTEMS LIMITED - THE COMPANY TURNOVER IS RS.2.917 CRORES AND IT IS FUNCTIONALLY DISSIMILAR AND FAILS THE UPPER TURN OVER FILTER. E) TATA ELXSI LIMITED - THE COMPANY HAS TURNOVER OF RS.2 35.63 CRORES AND FUNCTIONALLY DISSIMILAR, AND IS ENGAGED IN PRODUCT DEVELOPMENT ACTIVITY WHICH INCLUDE MULTI MEDIA IMAGING PROCESS AND INVOLVED IN ACTIVITIES SUCH AS HARDWARE DESIGN, INDUSTRIAL DESIGN, ENGINEERING DESIGN AND VISUAL COMPUTING. 8. FURTHER T HE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THAT THESE COMPARABLE COMPANIES WERE EXCLUDED BY THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF NOVELL SOFTWARE DEVELOPMENT PVT. LTD. VS. DCIT IN IT(TP)A NO.1483/ BANG/2010 8 ITA NO.159/BANG/2019 DT.29.11.2016 OBSERVED AT PAGE S 9, 10 & 11 IN RESPECT OF ABOVE COMPARABLES AS UNDER : 9 ITA NO.159/BANG/2019 10 ITA NO.159/BANG/2019 WE CONSIDERING THE FUNCTIONAL DISSIMILARITIES AND FAILURE OF UPPER TURN OVER FILTERS, JUDICIAL DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2006 - 2007 , DIRECT THE TPO TO EXCLUDE A) INFOSYS LIMITED B) TATA ELXSI LIMITED C) KALS INFORMATION SYSTEMS LIMITED D) PERSISTENT SYSTEMS LIMITED E) AZTEC S OFT LIMITED FROM THE FINAL LIST OF COMPARABLES FOR DETERMINATION OF ALP. 9. THE COMPARABLE(F) BODHTREE CONSULTING LIMITED , WHOSE THE TURNOVER IS RS.5.31 CRORES AND FUNCTIONALLY DISSIMILAR AND IS ALSO ENGAGED IN PRODUCT SALES. THE LEARNED AUTHORIZED REPRE SENTATIVE SUBMITTED THAT THE CO - ORDINATE BENCH OF THIS 11 ITA NO.159/BANG/2019 TRIBUNAL IN THE CASE OF ACIT VS. ELECTRONICS IMAGING PVT. LTD. IN IT(TP)A NO.1725/BANG/2017 DT.31.10.2018 HAS DEALT ON THE ISSUE OF EXCLUSION OF BODHTREE CONSULTING LTD AT PAGE 15 PARA 16 AS UNDER : 12 ITA NO.159/BANG/2019 WE RELY ON THE CO - ORDINATE BENCH DECISION OF THETRIBUNAL AND , DIRECT THE TPO TO EXCLUDE BODHTREE CONSULTING LIMITED FORM THE FINAL LIST OF COMPARABLES FOR DETERMINATION OF ALP. 10. IN RESPECT OF CORPORATE TAX ISSUE , THE LEARNED AUTHORIZED REPRESENTATIVE MADE SUBMI SSIONS ON DISALLOWANCE OF SOFTWARE EXPENDITURE UNDER SECTION 37 OF THE ACT OF RS.4 , 86,50,623 / - . WHERE THE ASSESSING OFFICER HAS TREATED AS CAPIT AL EXPENDITURE AND NO DEPRECIATION WAS ALLOWED . FURTHER CONTENTION S WERE RAISED ALTER NATIVELY , IF THE SOFTWARE EXPENDITURE IS NOT ALL OWED AS REVENUE EXPENDITURE, THAN DEPRECIATION HAS TO BE ALLOWED. WE ON PERUSAL OF THE DRAFT ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS FILED THE DETAILS OF SOFTWARE EXPENSE S BY LETTER DT.29.11.2017 BUT THE A.OS OBSERVATIONS THAT THE ASSESSEE IS NOT IN A PO SITION TO SHOW THAT IT WAS PUT TO USE DURING THE YEAR AND NO DOCUMENTARY PROOF WAS SUBMITTED TO SUBSTANTIATE THE USAGE OF SOFTWARE. FURTHER THE DRP HAS DEALT IN ITS ORDER AT PAGE 27 PAR A 2.27.1 AND OBSERVED THAT THE ASSESSEE HAS FAILED TO PROVE THE CORRESPONDING ASSETS WERE PUT TO USE BY THE END OF THE FINANCIAL YEAR AND THEREFORE DEPRECIATION WAS NOT ALLOWED. EVEN BEFORE US, THE ASSESSEE COULD NOT FILE THE DETAILS OF USAGE OF CORRES PONDING ASSETS FOR THE PURPOSE OF BUSINESS DU RING THE FINANCIAL YEAR AND NO DOCUMENTARY PROOF WAS FILED. T HE ASSESSEE WAS PROVIDED AN OPPORTUNITY BY THE ITAT IN REMANDING THE DISPUTED ISSUE TO THE ASSESSING OFFICER, THE ASSESSEE COULD NOT SUBSTAN TIATE WITH PROOF ON USAGE OF 13 ITA NO.159/BANG/2019 ASSETS IN THE PREVIOUS YEAR. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE SUBMISSIONS AND ALTERNATIVE PLEAS AND CONFIRM THE ACTION OF THE ASSESSING OFFICER AND DISMISS THE GROUND OF APPEAL OF THE ASSESSEE. 11. THE LDAR SUBMITT ED THAT THE ASSESSING OFFICER HAS NOT GRANTED CREDIT FOR TAXES PAID IN PRO TEST AMOUNTING TO RS.3 CRORES. WE FOUND, THE DRP HAS CONSIDERED THE OBJECTIONS OF THE ASSESSEE AT PARA 2.8.1 AND DIRECTED THE ASSESSING OFFICER TO EXAMINE THE CLAIM AND ALLOW THE CRE DIT AFTER VERIFICATION. THE LEARNED AUTHORIZED REPRESENTATIVES CONTENTION S ARE THAT IN THE FINAL ASSESSMENT ORDER, THE ASSESSING OFFICER HA S NOT GRANTED THE CREDIT FOR TAXES PAID . WE CONSIDERING THE FACTS AND SUBMISSIONS DIRECT THE ASSESSING OFFICER TO G RANT CREDIT OF TAXES PAID AFTER DUE VERIFICATION AND ALLOW THE GROUND OF APPEAL FOR STATISTICAL PURPOSES. 12. IN THE RESULT, THE ASSESSEE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE. S D / - S D / - ( A.K. GARODIA ) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 0 4 .03. 20 20 . *REDDY GP 14 ITA NO.159/BANG/2019 COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT (A) 4. PR. CIT 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BANGALORE