DCIT, Bangalore V. M/s Nirvana Business Solutions Pvt. Ltd., Bangalore

ITA 171/BANG/2012

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5649 (ITAT-BANGALORE)
• Duration Of Justice: 5 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 02-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Related party transaction; Transfer pricing; International transaction
• Section: 143(3); 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI JASON P BOAZ , ACCOUNTANT MEMBER AND SHRI LALIT KUMAR, JUDICIAL MEMBER I.T . (T.P) A. NO. 171 /BANG/20 12 (ASSESSMENT YEAR : 20 04 - 05 ) DY. COMMISSIONER OF INCOME TAX, CIRCLE 12(2), BAN GALORE. . APPELLANT. VS. M/S. NIRVANA BUSINESS SOLUTIONS PVT. LTD., NO.98, SHRI KRISHNA NILAYAM, 3 RD CROSS, PILLANA GARDEN, 3 RD STAGE, BANGALORE - 560 005 . .. RESPONDENT. APPELLANT BY : MS. NEERA MALHOTRA, CIT (D.R) R E SPONDENT BY : SHRI PADAMCHAND KHINCHA, C.A. DATE OF H EARING : 17.01.2018. DATE OF P RONOUNCEMENT : 19 .01 .201 8 . O R D E R PER SHRI JASON P BOAZ, A .M . : THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - IV , BANGALORE DT. 30.11.2011 FOR THE ASSESSMENT YEAR 20 04 - 05. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE AS UNDER : - 2.1 THE ASSESSEE , A COMPANY PROVIDING BPO SERVICES & SOLUTIONS IN ACCOUNTING, TRANSACTION SUPPORT AND CUSTOMER CARE, FILED ITS RETURN OF 2 IT (TP) A NO. 171 /BANG/201 2 INCOME FOR ASSESSMENT YEAR 2004 - 05 ON 31.1 0.2004 DECLARING LOSS OF RS.8,04,53,000. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') AND THE CASE WAS SUBSEQUENTLY TAKEN UP FOR SCRUTINY. IN VIEW OF THE INTERNATIONAL TRANSACTIONS REPORTED BY THE ASSESS EE, THE CASE WAS REFERRED UNDER SECTION 92CA OF THE ACT TO THE TRANSFER PRICING OFFICER ( TPO ) FOR DETERMINING THE ARM S LENGTH PRICE ( ALP ) OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION. THE TPO AS PER HIS ORDER UNDER SECTION 92CA OF THE ACT DT.22.12.2006, AFTER EXAMINING THE TP STUDY CARRIED OUT BY THE ASSESSEE, APPLIED TNMM AS THE MOST APPROPRIATE METHOD ( MAM ) AND AFTER ALLOWING WORKING CAPITAL ADJUSTMENT @ 2% WORKED OUT THE TRANSFER PRICING ADJUSTMENT A T RS.7,37,55,835 IN RESPECT OF THE ASSESSEE'S INTERNATIONAL TRANSACTIONS IN THE ITES SEGMENT OF THE ASSESSEE'S ACTIVITIES. THE ORDER OF ASSESSMENT WAS ACCORDINGLY COMPLETED UNDER SECTION 143(3) OF THE ACT VIDE ORDER DT.29.12.2006 WHEREIN THE ASSESSEE'S IN COME / LOSS WAS DETERMINED AT ( - ) RS.66,37,165 AFTER INCORPORATION OF THE TRANSFER PRICING ADJUSTMENT OF RS7,37,55,835. ON APPEAL, THE CIT (APPEALS) IV VIDE ORDER DT.30.11.2011 DISPOSED OF THE ASSESSEE'S APPEAL, ALLOWING THE ASSESSEE PARTIAL RELIEF. 3. BOTH THE ASSESSEE AND REVENUE WERE AGGRIEVED BY THE ORDER OF THE CIT (APPEALS) IV, BANGALORE DT.30.11.2011 FOR ASSESSMENT YEAR 2004 - 05. WE WERE INFORME D BY THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE THAT THE ASSESSEE'S APPEAL IN IT(TP)A NO.1077/BANG/2014 HAS BEEN HEARD ON 17.12.2017 AND THE ORDERS ARE AWAITED. IN THESE 3 IT (TP) A NO. 171 /BANG/201 2 CIRCUMSTANCES, WHAT IS BEFORE US IS REVENUE S APPEAL IN IT(TP)A NO.171/BANG/2012 WHICH WE HAVE HEARD AND PROCEEDED TO DISPOSE HEREUNDER. 4. IN REVENUE S APPEAL, THE GROUNDS RAISED ARE AS FOLLOWS : 1. THE ORDER OF THE LEARNED CIT (APPEALS) IN SO FAR AS IT RELATES TO THE FOLLOWING GROUNDS IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (APPEALS) ERRED IN HOLDING THAT THE TPO SHOULD NOT INCLUDE UNCONTROLLED COMPARABLE HAVING ANY UNRELATED PARTY TRANSACTIONS EVEN UPTO 25%. 3. THE LEARNED CIT (APPEALS) ERRED IN HOLDING THAT THE ASSESSEE IS ELIGIBLE FOR A STANDARD DEDUCTION OF 5% FROM THE ARM S LENGTH PRI CE UNDER THE PROVISO TO SEC. 92C(2) OF THE IT ACT, 1961. 4. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT (APPEALS) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT OF TH E ASSESSING OFFICER MAY BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND / OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 5. GROUNDS 1, 4 & 5 BEING GENERAL IN NATURE, NO ADJUDICATION IS CALLED FOR THEREON. 6. GROUND NO.2 APPLICATION OF RPT FILTER. 6.1 IN THIS GROUND, REVENUE ASSAILED THE ACTION OF THE LEARNED CIT (APPEALS) IN HOLDING THAT THE TPO SHOULD NOT INCLUDE COMPARABLES HAVING RPT FILTER UPTO 25%. ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, A PERUS AL OF THE GROUNDS RAISED BY THE ASSESSEE BEFORE THE CIT (APPEALS) WOULD SHOW THAT NO GROUND ON RPT. THE LEARNED 4 IT (TP) A NO. 171 /BANG/201 2 DEPARTMENTAL REPRESENTATIVE DREW THE ATTENTION OF THE BENCH TO PARA (V) ON PAGE 11 OF THE IMPUGNED ORDER OF THE LEARNED CIT (APPEALS) TO SHOW THA T THE LEARNED CIT (APPEALS) RENDER ED SUCH AN UNCALLED FOR FINDING WHEN DECIDING THE EXCLUSION OF WIPRO BPO SOLUTIONS LTD. AS A COMPARABLE COMPANY. IT WAS EMPHATICALLY URGED THAT THE AFORESAID FINDING RENDERED BY CIT (APPEALS) IN RESPECT OF RPT WHEN DEAL ING WITH THE COMPARABILITY OF WIPRO BPO SOLUTIONS LIMITED OUGHT TO BE REVERSED. 6.2 THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT WHILE IT IS T RUE THAT NO GROUND ON RPT WAS RAISED BEFORE THE LEARNED CIT (APPEALS), THE REVERSAL OF HIS FINDING IN THIS REGARD WOULD HAVE NO BEARING ON DECIDING THE EXCLUSION OF WIPRO BPO SOLUTIONS LTD. FROM THE LIST OF COMPARABLES SINCE THIS COMPANY WAS EXCLUDED NOT ONLY ON GROUNDS OF RPT; BUT ALSO ON ACCOUNT OF OWNERSHIP OF BRAND AND INTANGIBLES AN D HAVING VERY HIGH TURNOVER. 6.3 WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. ON A PERUSAL OF THE GROUNDS RAISED BY THE ASSESSEE BEFORE THE LEARNED CIT (APPEALS) WE FIND THAT NO GROUNDS WERE RAISED FOR EXCLUSION OF ANY OF THE COMPANIES FR O M THE LIST OF COMPARABLES ON GROUNDS OF RPT FILTER. IN THIS VIEW OF THE MATTER, THE FINDING OF THE LEARNED CIT (APPEALS) FOR EXCLUDING WIPRO BPO SOLUTIONS LIMITED FROM THE LIST OF COMPARABLES ON GROUNDS OF APPLICATION OF RPT FILTER WAS NOT WARRANTED AS IT DID NOT EMANATE AS A CAUSE OF GRIEVANCE IN THE GROUNDS RAISED BY THE ASSESSEE AND WE , THEREFORE, ACCORDINGLY CANCEL 5 IT (TP) A NO. 171 /BANG/201 2 THE FINDING RENDERED BY THE LEARNED CIT (APPEALS) IN THIS REGARD. CONSEQUENTLY, GROUND NO.2 RAISED B Y THE REVENUE IS ALLOWED TO THIS EXTENT. HOWEVER, THIS WOULD NOT IN ANY WAY AFFECT THE FINDING OF THE LEARNED CIT (APPEALS) IN EXCLUDING WIPRO BPO SOLUTIONS LIMITED FR O M THE LIST OF COMPARABLES ON GROUNDS OF BRAND AND INTANGIBLE OWNERSHIP AND HUGE TURNOVE R. 7. GROUND NO.3 - STANDARD DEDUCTION OF 5% FROM ALP UNDER PROVISO TO SECTION 92(2) OF THE ACT . 7. 1 IN THIS GROUND, REVENUE HAS ASSAILED THE ORDER OF THE LEARNED CIT (APPEALS) IN HOLDING THAT THE ASSESSEE IS E LIGIBLE TO THE BENEFIT OF STANDARD DEDUCTION OF 5% FROM THE ALP UNDER THE PROVISO TO SEC. 92 C (2) OF THE ACT. 7.2 WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. BY VIRTUE OF THE RETROSPECTI VE AMENDMENT TO THE ACT MADE BY FINANCE ACT, 20 12 W.R.E.F. 1.4.2002 BY INTRODUCTION OF A CLARIFICAT ORY AMENDMENT IN WHICH SEC.92C(2A) WAS IN SER TED, IT IS MANDATED THAT IF THE ARITHMETIC MEAN PRICE FALLS BEYOND + / - 5% FROM THE PRICE CHARGED IN THE INTERNATIONAL TRANSACT IONS, THEN THE ASSESSEE DOES NOT HAVE ANY OPTION REFERRED TO IN SEC. 92C(2) OF THE ACT. THUS, AS PER THE ABOVE AMENDMENT, IT IS CLEAR THAT THE + / - 5 % VARIATION IS ALLOWED ONLY TO JUSTIFY THE PRICE CHARGED IN INTERNATIONAL TRANSACTIONS AND NOT FOR ADJUS TMENT PURPOSES. THE AFORESAID AMENDMENT BY INSERTION 6 IT (TP) A NO. 171 /BANG/201 2 OF SEC.92C(2A) OF THE ACT HAS SETTLED THE ISSUE AND ACCORDINGLY THE ASSESSEE IS NOT ENTITLED TO THE BENEFIT OF 5%. IN VIEW OF THE ABOVE, WE REVERSE THE FINDING OF THE LEARNED CIT (APPEALS) AND ALLOW GR OUND NO.3 RAISED BY THE REVENUE. 8. IN THE RESULT, REVENUE S APPEAL FOR A.Y. 2004 - 05 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 19TH DAY OF JAN., 201 7 . SD/ - ( LALI T K UMAR ) JUDICIAL MEMBER SD/ - ( JASON P BOAZ ) ACCOUNTANT MEMBER BANGALORE, DT. 19 .01.2018. *REDDY GP COPY TO : 1 APPELLANT 4 CIT(A) 2 RESPONDENT 5 DR. ITAT, BANGALORE 3 CIT 6 GUARD FILE SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL BANGALORE.