M/s.Zyme Solutions Private Limited, Bangalore V. Assistant Commissioner of Income-Tax, Bangalore

ITA 1661/BANG/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1845 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 16-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C H SUNDAR RAO
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Related party transaction; Transfer pricing; Opportunity of being heard; International transaction
• Section: 143(3); 92; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, B ENGALURU BEFORE S HRI N.V.VASUDEVAN , VICE PRESIDENT AND SHRI INTURI RAMA RAO , ACCOUNTANT MEMBER I T (TP) A NO. 1661 / BANG/2 0 1 6 (ASSESSMENT YEAR: 2012 - 13 ) M/S.ZYME SOLUTIONS PVT. LTD. NO.459, LAKSHA TOWERS, ASH OKA PILLAR ROAD, 2 ND BLOCK, JAYANAGAR, BENGALURU - 560 011. PAN: AAACZ2465R VS. APPELLANT ASSISTANT COMMISSIONER OF INCOME - TAX, CIRCLE 7(1)(2), BENGALURU. RESPONDENT APPELLANT BY : SHRI PADAMCHAND KHINCHA, CA. RESPONDENT BY : SHRI C.H.SUNDAR RAO, CIT(DR) DATE OF HEARING : 15/10/2018 DATE OF PRONOUNCEMENT : 16 /1 1 /2018 O R D E R PER INTURI RAMA RAO, A M : THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ASSESSMENT ORDER PASSED U/S 143(3) R.W.S. 144C(13) OF T HE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT] BY THE ASSISTANT COMMISSIONER OF INCOME - TAX, CIRCLE 7(1)(2), BENGALURU FOR THE ASSESSMENT YEAR 2012 - 13. 2. THE ASSESSEE - COMPANY RAISED THE FOLLOWING GROUNDS OF APPEAL: IT (TP) A NO . 1661 /BANG/20 16 PAGE 2 OF 18 IT (TP) A NO . 1661 /BANG/20 16 PAGE 3 OF 18 IT (TP) A NO . 1661 /BANG/20 16 PAGE 4 OF 18 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE APPELLANT IS A COMPANY DULY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956. IT IS A SUBSIDIARY OF ZYME SOLUTIONS INC., USA. IT IS ENGAGED IN THE BUSINESS OF PROVIDING SOFTWARE SERVICES TO ITS A SSOCIATED ENTERPRISES (AE) ON COST + MARKUP BASIS. IT IS STATED THAT T HE NATURE OF SOFTWARE SERVICES PROVIDED ARE IN THE FIELD OF DATA PROCESSING SERVICES PERTAINING TO SUPPORT TO DATA MANAGEMENT SERVICES WITH MINIMUM APPLICATION OF KNOWLEDGE AND LIMITED TO NIL ANALYTICAL AND TECHNICAL SKILLS. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2012 - 13 WAS FILED ON 28/11/2012 DISCLOSING TOTAL INCOME OF RS.1,65,93,100/ - UNDER NORMAL PROVISIONS. THE SAID RETURN OF INCOME WAS PICKED UP FOR SCRUTINY ASSESSMENT. DU RING THE COURSE OF SCRUTINY PROCEEDINGS, THE ASSESSING OFFICER (AO) NOTICED THE APPELLANT HAD INTERNATIONAL TRANSACTION OF PROVIDING SUPPORT TO DATA ANALYSIS SERVICES TO ITS AE OF RS.30,36,02,320/ - . THEREFORE, AO REFERRED THE MATTER TO THE TRANSFER PRICING OFFICER (TPO) FOR THE PURPOSE OF BENCH MARKING THE ABOVE INTERNATIONAL TRANSACTION U/S 92CA(3) OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT]. 3. THE APPELLANT SUBMITTED TRANSFER PRICING STUDY REPORT CLASSIFYING ITS ACTIVIT IES AS ITES AND SOFTWARE SERVICES SEGMENT AND THE APPELLANT HAD ADOPTED TNMM AS THE MOST APPROPRIATE METHOD FOR THE PURPOSE OF BENCH MARKING THE ABOVE INTERNATIONAL TRANSACTION. THE APPELLANT ALSO ADOPTED OPERATING PROFIT TO TOTAL COST AS A PROFIT LEVEL I NDICATOR. HOWEVER, IN RESPECT OF ITES SEGMENT, TPO HAD NOT ACCEPTED THE TP STUDY REPORT SUBMITTED BY THE APPELLANT ON THE GROUND THAT THE APPELLANT HAS ADOPTED MULTIPLE YEAR DATA AND HAD NOT APPLIED THE FILTER OF EXPORT REVENUE OF MORE IT (TP) A NO . 1661 /BANG/20 16 PAGE 5 OF 18 THAN 75% OF SALE S AND THE EMPLOYEE COST FILTER OF MORE THAN 25% OF SALES AND PROCEEDED TO IDENTIFY DIFFERENT SET OF COMPARABLES BY ADOPTING THE FOLLOWING FILTERS: USE OF CURRENT YEAR DATA. COMPANIES HAVING DIFFERENT FINANCIAL YEAR ENDING (I.E. NOT MARCH 31, 2012 ) OR DATA OF THE COMPANY WHICH DOES NOT FALL WITHIN 12 MONTH PERIOD I.E. 01/04/2011 TO 31/03/2012, WERE REJECTED. COMPANIES WHOSE SERVICE INCOME