DCIT 8(2), MUMBAI V. PANGEE-3 GLOBAL SERVICES P.LTD, MUMBAI

ITA 1695/MUM/2013

• Counselvise Citation: 169519914 RSA 2013
• Duration Of Justice: 1 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 01-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Assessee Lawyers: DEEPAK MURARKA; PRAKASH KOTADIA
• Keywords: Depreciation; Transfer pricing; International transaction

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE S/SHRI I.P. BANSAL, (JM) AND N.K.BILLAIYA (AM) . . , . . , ./I.T.A. NO.1695/MUM/2013 ( / ASSESSMENT YEAR : 2009-10) DY. COMMISSIONER OF INCOME TAX 8(2), ROOM NO.209/216A, 2 ND FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 / VS. M/S PANGEE - 3 GLOBAL SERVICES PVT.LTD., 102-B, GROUND FLOOR, LEELA BUSINESS PARK, ANDHERI KURLA ROAD, ANDHERI (E), MUMBAI-400059 ( $ / APPELLANT) .. ( %&$ / RESPONDENT) ./ ./PAN/GIR NO. : AADCP5625Q $ / APPELLANT BY : SHRI JITENDRA YADAV %&$ * /RESPONDENT BY : S /S HRI PRAKASH KOTADIA AND DEEPAK MURARKA * . / DATE OF HEARING : 29.5.2014 * . /DATE OF PRONOUNCEMENT : 29.5.2014 / O R D E R PER I.P.BANSAL, JM: THIS APPEAL IS FILED BY THE REVENUE. IT IS DIRE CTED AGAINST THE ORDER PASSED BY LD. CIT(A) DATED 5.12.2012 FOR THE ASSESSMENT YEAR 2009-10. 2. GROUNDS OF APPEAL TAKEN BY THE REVENUE READ AS U NDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN DELETING THE DISALLOWANCE OF EXPEN SES OF RS.28,69,439/- FROM DOMESTIC SEGMENT BEING COMMON EXPENSES IN THE NATUR E OF RENT, POWER, TELEPHONE, DEPRECIATION PROPORTIONATELY ALLOCATED T O THE EXPORT SEGMENT ON THE BASIS OF SALES RATIO, WITHOUT APPRECIATING THAT TH E ASSESSEE ITSELF HAD ALLOCATED OTHER COMMON EXPENSES I.E. INSURANCE, MISCELLANEOUS EXPENSES REPAIRS ETC ACCORDINGLY; 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD CIT(A) ERRED IN DELETING THE FURTHER ADJUSTMENT O F 15% MARK UP ON THE EXPENSES OF RS.28,69,439/- BEING COMMON EXPENSES IN THE NATURE OF RENT, POWER, TELEPHONE, DEPRECIATION PROPORTIONATELY ALLO CATED TO THE EXPORT SEGMENT I.T.A. NO.1695/MUM/2013 2 ON THE BASIS OF SALES RATIO, WITHOUT APPRECIATING THAT SUCH ADJUSTMENT WAS MADE BY THE AO COMMENSURATELY WITH THE 15% MARK UP ON TH E OTHER EXPORT EXPENSES DONE BY THE ASSESSEE ITSELF 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS ACTIVITIES AS UNDER : A) DOMESTIC BUSINESS - PROVIDING OUTSOURCES LEGAL, PATENT AND IP TECHNICAL SERVICES; B) EXPORT BUSINESS- RENDERING MARKETING, PUBLIC RE LATION, PUBLICITY AND BRANDING SERVICES; THE ASSESSEE ENTERED INTO AN ARRANGEMENT WITH IS PARENT COMPANY VIZ PANGEA3 LLC, USA (P23 LLC) TO PROVIDE MARKETING PUBLIC RELATION S PUBLICITY AND BUSINESS BRANDING SERVICES. THE ASSESSEE HAS CHARGED P3 LLC AT COS T PLUS 15% MARK-UP FOR RENDERING SERVICES. DURING THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR IN QUESTION TOTAL AMOUNT CHARGED BY THE ASSESSEE TO P3 LLC IS A SUM OF RS.49,98,094/- TOWARDS MARKETING, PUBLIC RELATIONS AND PUBLICITY AND BRAND ING SERVICES. 4. FOR THE PURPOSE OF COST PLUS MARK-UP15% FOR THE SERVICES RENDERED TO P3 LLC, THE ASSESSEE IDENTIFIED DIRECT EXPENSES ATTRIBUTAB LE TO PROVISION OF SUCH SERVICES AND IN CASE OF COMMON EXPENSES, THE SAME HAVE BEEN ALL OCATED ON THE BASIS OF SALES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A O REQUIRED THE ASSESSEE TO SUBMIT SEGMENT WISE PROFIT AND LOSS ACCOUNT GIVING PARTIC ULARS OF EXPORT BUSINESS AND DOMESTIC BUSINESS SEGMENT. FROM THE DETAILS, THE AO CAME TO KNOW THAT ASSESSEE DID NOT ALLOCATE ANY EXPENSES TOWARDS RENT, POWER, TELEPHON E AND COMMUNICATION EXPENSES AND DEPRECIATION. WHILE COMPUTING THE COST FOR THE PUR POSE OF MARK-UP 15%, THE DETAILS OF THESE EXPENSES ARE AS UNDER : PARTICULARS DOMESTIC BUSINESS EXPORT OF MARKETING AND PR SERVICES TOTAL RENT 17,69,507 - 17,69,507 POWER 2,50,665 - 2,50,665 TELEPHONE AND COMMUNICATION EXPENSES 5,83,902 - 5,83,902 DEPRECIATION 12,21,844 - 12,21,844 TOTAL 38,25,918 - 38,25,918 I.T.A. NO.1695/MUM/2013 3 5. ACCORDING TO THE AO AN AMOUNT OF RS.28,69,439/- WAS REQUIRED TO BE ALLOCATED TO EXPORT BUSINESS. ACCORDINGLY, THE AO HAS HELD THAT SUM OF RS.28,69,439/- REPRESENT EXCESS CLAIM MADE BY THE ASSESSEE IN RESPECT OF DOM ESTIC SEGMENT AND ACCORDINGLY THE SAID AMOUNT WAS ADDED TO THE TOTAL INCOME OF THE AS SESSEE. THE ALLOCATION MADE BY THE AO IN RESPECT OF THESE EXPENSES IS DEPICTED IN THE FOLLOWING CHART: PARTICULARS DOMESTIC BUSINESS EXPORT OF MARKETING AND PR SERVICES TOTAL RENT 4,42,377 13,27,130 17,69,507 POWER 62,666 1,87,999 2,50,665 TELEPHONE AND COMMUNICATION EXPENSES 1,45,976 4,37,927 5,83,902 DEPRECIATION 3,05,461 9,16,383 12,21,844 TOTAL 9,56,480 28,69,439 38,25,918 6. IT MAY ALSO BE MENTIONED HERE THAT SIMILAR AD DITION HAS ALSO BEEN MADE BY AO AS ADJUSTMENT IN INTERNATIONAL TRANSACTION WHER EBY ASSESSEES RECEIPTS ON THE SAME ISSUE AMOUNTING TO RS.49,98,154/- HAS BEEN ENHANCE D TO 82,98,010/- AS THE TRANSFER PRICE ADJUSTMENT. THEREFORE, THE ADDITION OF RS. 32,99,856/- WAS MADE ON ACCOUNT OF TRANSFER PRICE ADJUSTMENT WHICH IS SEPARATE FROM THE AFOREMENTIONED ADDITION OF RS.28,69,439/- AND THIS ADDITION WAS ALSO CHALLENGE D IN THE APPEAL FILED BEFORE THE LD. CIT(A). THE SAID ADDITION OF RS.32,99,856/- HAS ALSO BEEN DELETED BY LD. CIT(A) FOR THE REASONS THAT ADDITION OF RS.28,69,438/- HAS BEEN DELETED. SINCE THE DEPARTMENT IN THE PRESENT APPEAL HAS CHALLENGED ONLY THE DELE TION OF RS.28,69,439/- TOUCHING TO THE DOMESTIC SEGMENT ONLY, THE GRIEVANCE OF THE R EVENUE IS ONLY WITH RESPECT TO DELETION OF RS.28,69,439. THOUGH MENTIONING OF TH IS FACT IS NOT NECESSARY FOR THE PURPOSE OF DECIDING THE PRESENT APPEAL BUT FOR THE SAKE OF COMPLETENESS THIS FACT IS MENTIONED HERE. 7. THE AFOREMENTIONED ADDITION HAS BEEN DELETED BY THE LD. CIT(A) ON THE BASIS OF THE SUBMISSION OF THE ASSESSEE THAT IT HAD OUTSOURC ED MARKETING PUBLIC RELATION, PUBLICITY AND TRADING WORK BY APPOINTING THIRD PAR TY AGENCIES M/S MVP DESIGN PROTOCOL PVT LTD. AND TEXT HUNDRED INDIA (P) LTD. THEREFO RE, THE EXPENSES IN THE NATURE OF RENT, POWER, TELEPHONE, COMMUNICATION AND DEPRECIA TION HAD NOTHING TO DO WITH THE COST INCURRED BY THE ASSESSEE IN RESPECT OF EXPORT SEGMENT. IT WAS SUBMITTED THAT M/S MVP DESIGN PROTOCOL PVT LTD WAS PAID RS.19,80,000 /- TO PROVIDE BRANDING, DESIGN AND MARKETING RELATED SERVICES. TEXT HUNDRED INDIA (P ) LTD WAS PAID RS.15,21,450/- TO PROVIDE PUBLIC RELATION AND MARKETING SELLING SERVI CES. SINCE THESE SERVICES WERE I.T.A. NO.1695/MUM/2013 4 OUTSOURCED THERE WAS NO EXPENSE TO BE ALLOCATED FO R THE EXPORT OF THESE SERVICES AND EXPENDITURE ON RENT, POWER, TELEPHONE, COMMUNICATI ON AND DEPRECIATION WERE EXACTLY USED BY THE ASSESSEE FOR DOMESTIC BUSINESS. BASED ON THESE SUBMISSIONS, THE LD. CIT(A) HAS PROVIDED RELIEF TO THE ASSESSEE. THE D EPARTMENT IS AGGRIEVED, HENCE HAS FILED AFOREMENTIONED GROUNDS OF APPEAL. 8. WE HAVE HEARD BOTH THE PARTIES AND THEIR SUBMISS IONS HAVE CAREFULLY BEEN CONSIDERED. THE LD. CIT(A) HAS RECORDED THE FINDIN G THAT EXPORT SEGMENT SERVICES RENDERED BY THE ASSESSEE WERE OUTSOURCED AND THE EXPENSES WHICH HAVE NOT BEEN ALLOCATED BY THE ASSESSEE WERE NOT INCURRED FOR THE PURPOSE OF EXPORT BUSINESS. THESE FINDINGS RECORDED BY THE LD. CIT(A) HAVE NOT BEEN CONTROVERTED BY THE REVENUE. OUTSOURCE AGREEMENTS WERE PRODUCED BY ASSESSEE BEF ORE THE LD. CIT(A) AND PERUSING THE SAME HE HAS RECORDED THESE FINDINGS. THEREFOR E, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) VIDE WHICH IT HAS BEEN HELD THAT THE ALLOCATION AS DONE BY THE AO WAS NOT REQUIRED TO BE DONE IN RESPECT OF EXPENSES RELA TING TO RENT, POWER, TELEPHONE AND DEPRECIATION. WE DECLINE TO INTERFERE IN THE ORDER OF LD. CIT(A). ACCORDINGLY, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 9. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 29TH MAY, 2014. 2 3 29TH MAY, 2014 * SD SD ( . . / N.K.BILLAIYA) ( . . /I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI: 29TH MAY, 2014 . . ./ SRL , SR. PS ! / COPY OF THE ORDER FORWARDED TO : 1. $ / THE APPELLANT 2. %&$ / THE RESPONDENT. 3. 8 ( ) / THE CIT(A)- CONCERNED 4. 8 / CIT CONCERNED 5. 9 %; , . ; , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) . ; , /ITAT, MUMBAI