Appeal details
Counselvise Citation
[2017] 127 COUNSELVISE.COM (IT) 7491 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 10 month(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
11-10-2017
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
B
Next Hearing Date
03-07-2017
Assessment Year
2009-2010
Appeal Filed On
11-12-2014
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER IT(TP)A NO.1592/BANG/2014 ASSESSMENT YEAR : 2009-10 M/S. ARIBA TECHNOLOGIES INDIA PVT. LTD., RMZ ICON, # 51, PALACE ROAD, BANGALORE 560 052. PAN: AADCA 0918P VS. THE INCOME TAX OFFICER, WARD 11(1), BANGALORE. APPELLANT RESPONDENT IT(TP)A NO.1540/BANG/2014 ASSESSMENT YEAR : 2009-10 THE INCOME TAX OFFICER, WARD 11(1), BANGALORE. VS. M/S. ARIBA TECHNOLOGIES INDIA PVT. LTD., BANGALORE 560 052. PAN: AADCA 0918P APPELLANT RESPONDENT APPELLANT BY : S/SHRI P.K. PRASAD & SHRI UMASHANKAR GAUTAM, ADVOCATES RESPONDENT BY : SMT. H.L SOWMYA, ADDL. CIT(DR) ITAT, BENGALURU DATE OF HEARING : 19.09.2017 DATE OF PRONOUNCEMENT : 11.10.2017 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THESE CROSS APPEALS ARE PREFERRED BY THE REVENU E AS WELL AS THE ASSESSEE AGAINST THE ORDER OF CIT(APPEALS). SINCE THESE APPEALS WERE IT(TP)A NOS.1592 & 1540/BANG/2014 PAGE 2 OF 9 HEARD TOGETHER, THESE ARE BEING DISPOSED OF THROUGH THIS CONSOLIDATED ORDER. IT(TP)A 1540/BANG/2014 2. THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF CIT(APPEALS) ON A SOLITARY GROUND THAT THE CIT(APPE ALS) HAS ERRED IN DIRECTING THE AO TO FOLLOW THE RATIO LAID DOWN BY T HE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF TATA ELXSI LTD., 349 ITR 98 AND EXCLUDE THE INTERNET EXPENSES AND EXPENSES INCURRED IN FOREIGN CURRENCY ON TRAVEL FROM THE TOTAL TURNOVER ALSO WHILE COMPUTING THE DEDUCTI ON U/S. 10A OF THE ACT, WITHOUT APPRECIATING THE FACT THAT THERE IS NO PROV ISION IN SECTION 10A THAT SUCH EXPENSES SHOULD BE REDUCED FROM THE TOTAL TURN OVER ALSO, AS CLAUSE (IV) OF THE EXPLANATION TO SECTION 10A PROVIDES THA T SUCH EXPENSES ARE TO BE REDUCED ONLY FROM THE EXPORT TURNOVER, WITHOUT R EALIZING THAT THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN TH E CASE OF TATA ELXSI LTD. (SUPRA) HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND A SLP HAS BEEN FILED BEFORE THE HONBLE SUPREME COURT. 3. THE LD. DR IN SUPPORT OF THE GROUND RAISED HAS S UBMITTED THAT SINCE THE SLP HAS BEEN FILED IN THE HONBLE SUPREME COURT , THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT SHOULD NOT BE FOL LOWED. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HAS CONTENDED THAT THE OPERATION OF THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COU RT HAS NOT BEEN STAYED IT(TP)A NOS.1592 & 1540/BANG/2014 PAGE 3 OF 9 BY THE HONBLE SUPREME COURT, THEREFORE, THE TRIBUN AL IS SUPPOSED TO FOLLOW THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT. 4. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWE R AUTHORITIES, WE FIND THAT SO LONG AS THE JUDGMENT OF HON'BLE JURISD ICTIONAL HIGH COURT HOLDS THE FIELD, ALL SUBORDINATE AUTHORITIES ARE SUPPOSED TO FOLLOW THE SAME. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF CIT (APPEALS), WHO HAS ADJUDICATED THE ISSUE FOLLOWING THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF TATA ELXSI LTD. (SUPRA) . WE ACCORDINGLY CONFIRM HIS ORDER. ITA 1592/BANG/2014 5. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(APPEALS) ON VARIOUS GROUNDS AND DURING THE COUR SE OF PENDENCY OF THE APPEAL, THE ASSESSEE HAS FILED REVISED AND CONCISE GROUNDS OF APPEAL WITH A REQUEST THAT THE SAME MAY BE TAKEN IN PLACE OF TH E ORIGINAL GROUNDS RAISED ALONG WITH THE APPEAL. ACCORDINGLY, THE REV ISED GROUNDS FILED ON 23.06.2017 ARE TAKEN ON RECORD AND IT REPLACES THE ORIGINAL GROUNDS FILED ALONG WITH THE APPEAL MEMO. THE REVISED GROUNDS WH ICH ARE REQUIRED TO BE ADJUDICATED ARE EXTRACTED HEREUNDER:- 1. THAT THE ORDER PASSED BY THE LEARNED COMMISSIONE R OF INCOME TAX (APPEALS) - IV, BANGALORE ('CIT(APPEALS) ) TO THE EXTENT PREJUDICIAL TO THE APPELLANT, IS BAD IN LAW AND LIABLE TO BE QUASHED. IT(TP)A NOS.1592 & 1540/BANG/2014 PAGE 4 OF 9 2. THAT THE LEARNED CIT (APPEALS) ERRED IN UPHOLD ING THE REJECTION OF TRANSFER PRICING ('TP') DOCUMENTATION BY THE LEARNED TRANSFER PRICING OFFICER ('TPO')/ ASSESSING OFFICER ('AO'). 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT (APPEALS) ERRED IN MAKING AN ADJUSTMENT TO THE TRANSFER PRICE OF THE APPELLANT IN RESPECT OF ITS S OFTWARE DEVELOPMENT SERVICES RENDERED TO ASSOCIATED ENTERPR ISES AMOUNTING TO INR 33,015,336 AND IN DOING SO GROSSLY ERRED IN: (A) UPHOLDING THE REJECTION OF COMPARABILITY ANALYS IS OF THE APPELLANT IN THE TRANSFER PRICING ('TP') DOCUMENTAT ION AND ACCEPTING THE COMPARABILITY ANALYSIS PERFORMED BY T HE LEARNED TPO IN THE TRANSFER PRICING ORDER. (B) DISREGARDING APPLICATION OF MULTIPLE YEAR/PRIO R YEAR DATA AS USED BY THE APPELLANT IN THE TP DOCUMENTATION AND H OLDING THAT CURRENT YEAR (I.E. FINANCIAL YEAR 2008-09) DAT A SHOULD BE USED FOR COMPARABILITY. (C) UPHOLDING THE ACTION OF THE TPO OF PERFORMING HIS OWN COMPARABILITY ANALYSIS BY MODIFYING CERTAIN FILTERS APPLIED BY THE APPELLANT AND APPLYING DIMINISHING REVENUE FILT ER AND THEREBY REJECTING SIP TECHNOLOGIES AND EXPORT LIMIT ED THAT OTHERWISE SATISFY THE TEST OF FUNCTIONAL COMPARABIL ITY. (D) ACCEPTING THE CONTENTION OF THE TPO IN REJECTI NG COMPUTECH INTERNATIONAL LTD. AS COMPARABLES WHOSE EMPLOYEE CO ST WAS LESS THAN 25 PERCENT OF THE SALES AND THEREBY BEING INCONSISTENT WITH, THE POSITION ADOPTED IN, THE APP ELLANT'S OWN APPEAL PROCEEDINGS BEFORE THE CIT(A) FOR ASSESS MENT YEAR 2008-09. (E) INCLUSION OF BODHTREE LIMITED IN THE SET OF COM PARABLE COMPANIES THAT OTHERWISE FAILS THE TEST OF COMPARAB ILITY. (F) UPHOLDING THE ERRONEOUS WORKING CAPITAL ADJUSTM ENT COMPUTED BY THE TPO BY APPLYING AN UPPER LIMIT ON T HE QUANTUM OF WORKING CAPITAL ADJUSTMENT TO BE PROVIDE D, THUS NOT GRANTING THE CORRECT WORKING CAPITAL ADJUSTMENT TO THE APPELLANT. IT(TP)A NOS.1592 & 1540/BANG/2014 PAGE 5 OF 9 (G) UPHOLDING THE APPROACH OF THE TPO OF REJECTING FCS SOFTWARE SOLUTIONS LTD. & THINKSOFT GLOBAL SERVICES LTD. ONLY ON THE BASIS THAT SUCH COMPANIES HAD A SIGNIFI CANT BEARING ON THE COMPUTATION OF WORKING CAPITAL ADJUS TMENT OF THE APPELLANT. (H) NOT PROVIDING ANY ADJUSTMENT TOWARDS THE DIFFE RENCE IN THE RISK PROFILE BETWEEN THE APPELLANT AND THE ENTREPRE NEURIAL COMPANIES SELECTED AS COMPARABLES WHILE DETERMINING THE ARM'S LENGTH PRICE. THAT THE APPELLANT CRAVES LEAVE TO ADD TO AND / OR ALTER, AMEND, RESCIND OR MODIFY THE GROUNDS TAKEN HEREINABOVE BEF ORE OR AT THE TIME OF HEARING OF THIS APPEAL. 6. THE FACTS IN BRIEF BORNE OUT FROM THE RECORD ARE THAT ASSESSEE IS A SUBSIDIARY OF ARIBA TECHNOLOGIES NETHERLANDS BV. T HE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVISION OF SOFTWARE CO NSULTING AND PROGRAMMING SERVICES AND BACK OFFICE SUPPORT SERVIC ES TO ITS AE. THE ASSESSEE IS COMPENSATING ON COST PLUS MARK-UP BASIS FOR THE PROVISION OF OFFSHORE SERVICES. THE ASSESSEE HAS BEEN SELECTED AS A TESTED PARTY AS IT HAS LEAST COMPLEX OPERATIONS AND IT BEARS LESSER SH ARE OF RISKS. TNMM IS CONSIDERED AS MOST APPROPRIATE METHOD FOR DETERMINI NG THE ARMS LENGTH PRICE (ALP). THE ASSESSEE WAS IN RECEIPT OF A SUM OF RS.39.93 CRORES ON ACCOUNT OF PROVIDING SOFTWARE DEVELOPMENT CHARGES T O ITS AE AND THE SAME WAS SUBJECTED TO ALP ADJUSTMENT BY THE TPO. TNMM M ETHODOLOGY IS NOT IN DISPUTE. THE TPO HAS SELECTED 11 COMPARABLES FO R DETERMINING THE ALP. THE ASSESSEE HAS PREFERRED APPEAL BEFORE THE CIT(APPEALS), BUT DID NOT FIND FAVOUR WITH HIM WITH RESPECT TO EXCLUSION OF CERTAIN COMPARABLES. IT(TP)A NOS.1592 & 1540/BANG/2014 PAGE 6 OF 9 7. NOW THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNA L AND DURING THE COURSE OF HEARING, IT HAS SOUGHT EXCLUSION OF ONLY ON COMPARABLE I.E., BODHTREE CONSULTING LTD. IN SUPPORT OF WHICH IT WAS CONTENDED THAT EXCLUSION OF THIS COMPANY WAS EXAMINED BY THE TRIBU NAL IN THE CASE OF INFINERA INDIA PVT. LTD. IN IT(TP)A NO.1008/BANG/20 14 FOR THE AY 2009-10, IN WHICH ONE OF THE MEMBERS OF THIS BENCH WAS A PAR TY TO THE ORDER. IN THAT CASE, THE TRIBUNAL HAS EXAMINED THE PROFILE OF BODH TREE CONSULTING LTD. AND CAME TO THE CONCLUSION THAT BODHTREE CONSULTING LTD. IS FUNCTIONALLY DIFFERENT, FOLLOWING THE ORDER OF THE TRIBUNAL IN T HE CASE OF M/S. CISCO SYSTEMS INDIA PVT. LTD. IN IT(TP)A NO.271/BANG/2014 . WITH REGARD TO THE REMAINING COMPARABLES, THE ASSESSEE HAS NO OBJECTIO N. 8. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SOUGHT THE INCLUSION OF THE FOLLOWING TWO COMPARABLES VIZ., (1) FCS SOFTWARE S OLUTIONS LTD. (2) THINKSOFT GLOBAL SERVICES LTD. THE TPO HAS REJECTE D THESE COMPARABLES HAVING HELD THAT THESE COMPARABLES HAVE SIGNIFICANT BEARING ON THE COMPUTATION OF WORKING CAPITAL ADJUSTMENT OF THE AP PELLANT. IT WAS FURTHER CONTENDED THAT THESE COMPARABLES ARE FUNCTIONALLY S IMILAR AND WORKING CAPITAL IMPACT DOES NOT AFFECT THE FUNCTIONAL COMPA RABILITY. THE LD. COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT THESE COMPA RABLES WERE EXAMINED BY THE TRIBUNAL IN THE CASE OF HUAWEI TECHNOLOGIES INDIA PVT. LTD. IN IT(TP)A NO.265/BANG/2014 FOR THE AY 2009-10. COPY OF THE ORDER OF THE TRIBUNAL IS PLACED ON RECORD. IT(TP)A NOS.1592 & 1540/BANG/2014 PAGE 7 OF 9 9. ON THE OTHER HAND, THE LD. DR PLACED RELIANCE UP ON THE ORDER OF THE CIT(APPEALS). 10. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER A UTHORITIES IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND THAT THE FACTOR OF WO RKING CAPITAL ADJUSTMENT SHOULD BE TAKEN INTO ACCOUNT WHILE DETERMINING THE ALP. IF BENEFIT OF CAPITAL ADJUSTMENT CAN BE GIVEN TO ASSESSEE, THE SA ME SHOULD ALSO BE TAKEN INTO ACCOUNT WHILE DETERMINING THE PROFIT MAR GIN IN THE CASE OF COMPARABLES. THEREFORE, THE IMPACT OF CAPITAL ADJU STMENT IS ALWAYS THERE, WHETHER IT MAY BE A CASE OF TESTED PARTY OR THE COM PARABLES. THEREFORE, WE RESTORE THE ISSUE OF INCLUSION OF THESE TWO COMP ARABLES TO THE TPO, TO EXAMINE THE SAME AND ALLOW THE WORKING CAPITAL ADJU STMENT IN THE CASE OF THE COMPARABLES AND THE SAME BE TAKEN IN THE LIST O F COMPARABLES FOR DETERMINING THE ALP. THE INCLUSION OF OTHER COMPAR ABLE VIZ., SIP TECHNOLOGIES & EXPORT LTD. WAS NOT PRESSED BY THE A SSESSEE, THEREFORE, THE REQUEST FOR INCLUSION OF THE SAME IS REJECTED. 11. AS FAR AS EXCLUSION OF BODHTREE CONSULTING LTD. IS CONCERNED, WE FIND THAT THIS ISSUE WAS EXAMINED BY THE TRIBUNAL I N THE CASE OF M/S. INFINERA INDIA PVT. LTD. (SUPRA) , WHEREIN THE TRIBUNAL FOLLOWING THE ORDER OF THE TRIBUNAL IN THE CASE OF CISCO SYSTEMS INDIA PVT. LTD. (SUPRA) HAS DIRECTED THE EXCLUSION OF BODHTREE CONSULTING LTD. FROM THE LIST OF COMPARABLES. THE RELEVANT OBSERVATIONS OF THE TRIB UNAL ARE EXTRACTED HEREUNDER:- IT(TP)A NOS.1592 & 1540/BANG/2014 PAGE 8 OF 9 2) M/S. BODHTREE CONSULTING LTD. FOR EXCLUSION OF THIS COMPANY ALSO, RELIANCE HAS BEEN PLACED ON THE SAME TRIBUNAL ORDER RENDERED IN THE CASE OF CISCO SYSTEMS INDIA PVT. LTD. (SUPRA) AND IN PARTICULAR, OUR ATTENTION WAS DRAWN TO PARA 26.1 AVAILABLE ON PAGE NO. 98 TO 99 OF CASE LAW COMPENDI UM. IN THIS CASE, IT IS NOTED BY THE TRIBUNAL THAT THIS COMPANY IS IN THE BUSINESS OF SOFTWARE PRODUCT AND WAS ENGAGED IN PRO VIDING OPEN AND END TO END WEB SOLUTIONS SOFTWARE CONSULTANCY A ND DESIGN AND DEVELOPMENT OF SOFTWARE USING LATEST TECHNOLOGY AND THEREFORE, THE SAME CANNOT BE CONSIDERED AS A COMPA RABLE IN THE CASE OF COMPANIES RENDERING SOFTWARE DEVELOPMENT SE RVICES, AS IN THE PRESENT CASE. THEREFORE, BY RESPECTFULLY FOLLO WING THIS TRIBUNAL ORDER, WE HOLD THAT THIS COMPANY IS ALSO E XCLUDED FROM THE LIST OF FINAL COMPARABLES. 12. ACCORDINGLY, FOLLOWING THE ORDER OF THE TRIBUNA L IN THE CASE OF INFINERA INDIA PVT. LTD. (SUPRA), WE DIRECT THAT BODHTREE CONSULTING LTD. BE EXCLUDED FROM THE LIST OF COMPARABLES. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE STAND S PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVENUE STANDS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 11 TH DAY OF OCTOBER, 2017. SD/- SD/- ( A.K. GARODIA ) ( SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 11 TH OCTOBER, 2017. / D ESAI S MURTHY / IT(TP)A NOS.1592 & 1540/BANG/2014 PAGE 9 OF 9 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.
