ITO, Bangalore V. M/s Galax E Solutions India Pvt. Ltd., Bangalore

ITA 166/BANG/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7467 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 19-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: C J BRITO
• Keywords: Transfer pricing

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR, JUDICIAL MEMBER IT (TP) A NO. 1 66 /BANG/201 5 ASSESSMENT YEAR : 20 1 0 1 1 THE ITO WARD 3 (1) (2), BANGALORE. VS. M/S. GALAX E SOLUTIONS INDIA PVT. LTD., UNIT NO. 4, 8 TH FLOOR, INNOVATOR BLOCK, ITPL, WHITEFIELD ROAD, BANGALORE 560 066. PAN: AA B C G9007F APPELLANT RESPONDENT C.O. NO. 99/BANG/2015 (IN IT (TP) A NO. 1 66 /BANG/201 5 ) ASSESSMENT YEAR : 20 1 0 1 1 M/S. GALAX E SOLUTIONS INDIA PVT. LTD., UNIT NO. 4, 8 TH FLOOR, INNOVATOR BLOCK, ITPL, WHITEFIELD ROAD, BANGALORE 560 066. PAN: AABCG9007F VS. THE ITO WARD 3 (1) (2), BANGALORE. APPELLANT RESPONDENT A SSESSEE BY : SHRI C. J. BRITO , CA RE VENUE BY : MS NEERA MALHOTRA, CIT (DR) DATE OF HEARING : 12 .0 9 .2017 DATE OF PRONOUNCEMENT : 13 .10 .2017 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE REVENUE AND THE CROSS OBJECTION IS FILED BY THE ASSESSEE AND THESE ARE DIRECTED AGAINST THE ASSESSM ENT ORDER DATED ITA NO. 166/BANG/2015 & C.O. NO. 99/BANG/2015 PAGE 2 OF 7 24.12.2014 PASSED BY THE A.O. U/S 143 (3) R.W.S. 14 4C FOR ASSESSMENT YEAR 2010 11. 2. THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL ARE AS UNDER: 1. THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL A RE OPPOSED TO LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE DISPUTE RESOLUTION PANEL ERRED IN LAW IN DIRECTING THE AO T O EXCLUDE REIMBURSEMENT OF SPECIFIC EXPENDITURE BOTH FROM THE EXPORT TURNOVER AS WELL AS FROM TOTAL TURNOVER FOR THE PUR POSE OF COMPUTATION OF DEDUCTION U/S 10A, WITHOUT APPRECIAT ING THE FACT THAT THE STATUTE ALLOWS EXCLUSION OF SUCH EXPENDITU RE ONLY FROM EXPORT TURNOVER BY WAY OF SPECIFIC DEFINITION OF EX PORT TURNOVER AS ENVISAGED BY SUB-CLAUSE (4) OF EXPLANATION 2 BEL OW SUB- SECTION (8) OF SECTION 10A AND THE TOTAL TURNOVER H AS NOT BEEN DEFINED IN THIS SECTION. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE DISPUTE RESOLUTION PANEL ERRED IN DIRECTING THE AO TO COMPU TE DEDUCTION U/S 10A IN THE ABOVE MANNER BY PLACING RE LIANCE ON THE DECISION OF HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF M/S TATA ELXSI LTD., WHICH HAS NOT BECOME FINAL SIN CE THE SAME HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND SLPS AR E PENDING BEFORE THE HON'BLE SUPREME COURT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE DISPUTE RESOLUTION PANEL ERRED IN DIRECTING THE TPO /AO TO EXCLUDE THE COMPARABLE M/S ICRA TECHNO ANALYTICS LT D., M/S INFOSYS LTD., M/S PERSISTENT SYSTEM LTD., M/S PERSI STENT SYSTEMS & SOLUTIONS LTD., WITHOUT CONSIDERING THE F ACTS DISCUSSED BY THE TPO FOR SELECTION OF THE COMPARABL ES IN THE CASE OF ASSESSEE AND WITHOUT APPRECIATING THE FACT THAT THESE ARE QUALIFYING ALL THE QUALITATIVE AND QUANTITATIVE FILTERS APPLIED BY THE TPO. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE DISPUTE RESOLUTION PANEL ERRED IN DIRECTING THE TPO /AO TO EXCLUDE THE COMPARABLE TATA ELXSI LTD., WITHOUT APP RECIATING THE FACT THAT THE SELECTION OF COMPARABLES IN A CASE DE PENDS ON ASSESSEE SPECIFIC FAR ANALYSIS AND THIS IS FUNCTION ALLY COMPARABLE COMPANY WHICH QUALIFIES ALL THE QUALITAT IVE AND QUANTITATIVE FILTERS APPLIED BY THE TPO. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE DISPUTE RESOLUTION PANEL ERRED IN DIRECTING THE TPO /AO TO EXCLUDE THE COMPARABLE M/S THINKSOFT GLOBAL SERVICE S LTD., BY ITA NO. 166/BANG/2015 & C.O. NO. 99/BANG/2015 PAGE 3 OF 7 APPLYING NEW FILTER WITHOUT APPRECIATING THE FACT T HAT THE DIRECTION ACTUALLY AMOUNTS TO SETTING ASIDE OF THE DRAFT ORDER, WHICH IS BEYOND THE MANDATE GIVEN TO DRP VIDE PROVI SIONS BY SECTION 144C(8). 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, AS PER THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL, WHETHER WORKING CAPITAL ADJUSTMENT CAN BE MADE ON THE BASIS OF ADVA NCE RECEIVED FROM AES IN ABSENCE OF DEBTORS AND INVENTO RY IN THE CASE OF ASSESSEE FOR CALCULATING THE COST OF WORKIN G CAPITAL BUILT IN THE PROFIT MARGIN. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE DISPUTE RESOLUTION PANEL IS NOT JUSTIFIED IN DIRECTING THE TPO TO ADJUST THE PROFIT MARGIN OF THE ASSESSEE FOR THE ENTIRE AM OUNT OF ADVANCES RECEIVED FROM AE ON THE GROUND THAT THERE IS TIME VALUE FOR MONEY. 9. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE DIRECTIONS OF THE DI SPUTE RESOLUTION PANEL IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED. 10. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND / OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 3. THE GROUNDS RAISED BY THE ASSESSEE IN ITS C. O. AR E AS UNDER: 1. THE HON'BLE DISPUTE RESOLUTION PANEL ERRED IN LA W AS WELL AS ON FACTS BY REJECTING THE ASSESSEE'S PLEA T O CONSIDER THE UPPER TURNOVER FILTER APPLIED AT RS.200 CRORES BY THE ASSESSEE AND THERE WRONGLY CONSIDERING M/S. LARSEN AND TURBO INFOTECH LIMITED AND M/S. SASKEN COMMUNICATIO N TECHNOLOGIES LIMITED AS COMPARABLE TO THE BUSINESS OF THE ASSESSEE COMPANY WHICH HAS A TURNOVER OF RS. 16 CRO RES ONLY. 2. THE HON'BLE DISPUTE RESOLUTION PANEL ALSO ERRED IN CONSIDERING M/S. KALS INFORMATION'S SYSTEMS LTD AS A COMPARABLE ALTHOUGH IT IS FUNCTIONALLY DIFFERENT FR OM THE ASSESSEE COMPANY. FURTHER THE ASSESSEE HAD CLEARLY DEMONSTRATED THAT THE SEGMENTAL INFORMATION OF M/S. KALS INFORMATION'S SYSTEMS LTD RELIED UPON BY THE TPO HA D INHERENT MISTAKES AND HENCE COULD NOT BE RELIED UPO N. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE DISPUTE RESOLUTION PANEL, THE LEARNED ASSESSING OFF ICER AS WELL AS LEARNED TRANSFER PRICING OFFICER HAVE ERRED IN NOT ITA NO. 166/BANG/2015 & C.O. NO. 99/BANG/2015 PAGE 4 OF 7 MAKING PROPER ADJUSTMENT FOR ENTERPRISE LEVEL AND TRANSACTION LEVEL DIFFERENCES BETWEEN THE APPELLANT AND COMPARABLE COMPANIES BY NOT ALLOWING THE RISK ADJUS TMENT TO THE ASSESSE COMPANY. 4. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING WITH THE PERMISSION OF THE BENCH. THE RESPONDENT CRAVES LEAVE TO ADD, ALTER, AMEND AND / OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 4. IT WAS AGREED BY BOTH SIDES THAT THE GROUND NO. 1 I N THE APPEAL OF THE REVENUE IS GENERAL. REGARDING GROUND NO. 2 & 3, BOT H SIDES AGREED THAT AS PER THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF CIT VS. TATA ELXI LTD. AS REPORTED IN 3 49 ITR 98 (KAR), IT WAS HELD BY HONBLE KARNATAKA HIGH COURT THAT TOTAL TURNOVER IS SUM TOTAL OF EXPORT TURNOVER AND DOMESTIC TURNOVER AND THEREFORE, IF AN AMOUNT IS REDUCED FROM EXPORT TURNOVER, THEN TOTAL TURNOVER ALSO GOES DOWN BY THE SAME AMOUNT AUTOMATICALLY. THE DIRECTIO NS OF DRP TO DEDUCT TELECOMMUNICATION EXPENSES FROM EXPORT TURNO VER AND TOTAL TURNOVER BOTH IS IN LINE WITH THIS JUDGMENT AND THE REFORE, WE DECLINE TO INTERFERE ON THIS ISSUE. ACCORDINGLY, GROUND NOS. 2 & 3 OF THE APPEAL OF THE REVENUE ARE REJECTED. 5. REGARDING THE REMAINING GROUNDS IN THE APPEAL OF TH E REVENUE IN RESPECT OF VARIOUS T. P. ISSUES, LEARNED DR OF THE REVENUE SUPPORTED THE DRAFT ASSESSMENT ORDER AND THE ORDER OF TPO AND LEARNED AR OF THE ASSESSEE SUPPORTED THE ORDER OF DRP. LEARNED DR OF THE REVENUE ALSO SUBMITTED THAT DRP HAS APPLIED A NEW FILTER I.E. ON SITE REVENUE FILTER TO EXCLUDE THINKSOFT GLOBAL SERVICES LIMITED. SHE S UBMITTED THAT IF A NEW FILTER IS APPLIED, IT SHOULD BE APPLIED TO ALL COMPARABLES AND NOT A SELECTED COMPARABLES ON PICK AND CHOOSE BASIS. ITA NO. 166/BANG/2015 & C.O. NO. 99/BANG/2015 PAGE 5 OF 7 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND T HAT ON PAGES 23 & 24 OF ITS ORDER, DRP HAS APPLIED ONSITE REVENUE FIL TER TO EXCLUDE THINKSOFT GLOBAL SERVICES LIMITED. THIS IS TRUE THA T IF A FILTER IS APPLIED, IT SHOULD BE APPLIED TO ALL COMPARABLES BE CAUSE IT MAY BE THAT OTHER COMPARABLES OTHERWISE INCLUDED MAY GET EXCLUD ED BY APPLYING A NEW FILTER AND THEREFORE, IN THAT SITUATION, EITHER THE NEW FILTER SHOULD NOT BE APPLIED OR IT SHOULD BE APPLIED TO ALL COMPA RABLES. LEARNED AR OF THE ASSESSEE DID NOT MAKE ANY REQUEST TO LEAVE T HIS NEW FILTER AND INCLUDE THINKSOFT GLOBAL SERVICES LIMITED AS A GOOD COMPARABLE. LEARNED DR OF THE REVENUE ALSO DID NOT ARGUE THAT T HIS FILTER SHOULD NOT BE APPLIED. HER ARGUMENT WAS THIS THAT THIS FILTER SHOULD BE APPLIED TO ALL COMPARABLES. IN THIS SITUATION, WE FEEL IT PROP ER TO RESTORE THE ENTIRE T. P. MATTER TO AO/TPO FOR A FRESH DECISION AFTER A PPLYING THIS FILTER TO ALL COMPARABLES. SINCE, THE MAJOR ASPECT OF T. P. I SSUE I.E. FINAL SELECTION OF COMPARABLES IS GOING BACK, WE RESTORE THE REMAINING ASPECT OF T. P. ISSUE ALSO I.E. WORKING CAPITAL ADJ USTMENT ALSO TO AO/TPO FOR A FRESH DECISION. ACCORDINGLY GROUND NOS . 4 TO 8 ARE ALLOWED FOR STATISTICAL PURPOSES. GROUND NOS. 9 & 1 0 ARE GENERAL. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 8. REGARDING THE C. O. OF THE ASSESSEE, IT WAS SUBMITT ED BY THE LEARNED AR OF THE ASSESSEE THAT GROUND NOS. 1 & 3 ARE NOT P RESSED AND ACCORDINGLY, THESE GROUNDS ARE REJECTED AS NOT PRES SED. HE ALSO SUBMITTED THAT GROUND NO. 4 IS GENERAL. ITA NO. 166/BANG/2015 & C.O. NO. 99/BANG/2015 PAGE 6 OF 7 9. REGARDING GROUND NO. 2, IT WAS SUBMITTED BY THE LEA RNED AR OF THE ASSESSEE THAT ON PAGES 14 TO 16 OF THE ORDER OF DRP , THE ISSUE WAS DECIDED AGAINST THE ASSESSEE ON THIS BASIS THAT IN THE PRESENT YEAR, THERE IS NO OTHER ACTIVITY OF THIS COMPARABLE I.E. KALS I NFORMATION SYSTEM LTD. THEREAFTER, HE SUBMITTED THAT THE RELEVANT PAG E OF THE ANNUAL REPORT OF THIS COMPANY IS AVAILABLE ON PAGE 271 OF THE PAPER BOOK AND FROM THAT, IT IS NOT COMING OUT THAT THERE IS NO OT HER ACTIVITY. HE ALSO PLACED RELIANCE ON A TRIBUNAL ORDER RENDERED IN THE CASE OF CORNER HEALTHCARE SOLUTIONS P LTD. VS.ITO IN ITA NO. 44/BA NG/2015 DATED 16.01.2017 FOR A. Y. 2010 11 AND SUBMITTED THAT T HE RELEVANT PAGE IS 551 & 552 AND IT WAS HELD IN THIS CASE THAT THIS CO MPANY IS HAVING INVENTORY OF RS. 60,47,977/- AS ON 31.03.2010 AND T HEREFORE, THIS COMPANY IS IN THE BUSINESS OF SOFTWARE PRODUCTS ALS O AND HENCE, CANNOT BE COMPARED WITH A PURE SOFTWARE DEVELOPMENT SERVICE PROVIDER. LEARNED DR OF THE REVENUE SUPPORTED THE O RDER OF DRP ON THIS ISSUE. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND T HAT AS PER THE BALANCE SHEET OF KALS INFORMATION SYSTEM LTD. AVAIL ABLE ON PAGE 265 OF THE PAPER BOOK, THERE IS INVENTORY OF RS. 60,47, 977/- AS ON 31.03.2010 BUT NO SCHEDULE OF INVENTORY IS AVAILABL E AND THEREFORE, IT IS NOT KNOWN AS TO WHETHER, THIS INVENTORY IS OF AP PLICATION SOFTWARE PRODUCT OR SOMETHING ELSE. THIS ASPECT HAS NOT FOU ND ATTENTION OF THE COORDINATE BENCH IN THE CASE CITED BEFORE US AND TH EREFORE, WE FEEL THAT THE MATTER SHOULD GO BACK TO AO/TPO TO FIND OUT FRO M THAT COMPANY U/S 133 (6) ABOUT THE DETAILS OF INVENTORY. MOREOVE R, THE T. P. ISSUE INVOLVED IN THE APPEAL OF REVENUE IS BEING RESTORED BACK TO AO/TPO AND THEREFORE, THIS ISSUE IS ALSO RESTORED BACK FOR FRESH DECISION. ITA NO. 166/BANG/2015 & C.O. NO. 99/BANG/2015 PAGE 7 OF 7 11. IN THE RESULT, THE C. O. FILED BY THE ASSESSEE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. 12. IN THE COMBINED RESULT, APPEAL OF REVENUE AND THE C ROSS OBJECTIONS OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PUR POSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (LALIET KUMAR) (A.K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 13 TH OCTOBER, 2017. / MS/ COPY TO: 1. APP ELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.