Foxteq Services India Private Limited, CHENNAI V. ACIT, CHENNAI

ITA 174/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8619 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 28-06-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 01-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K PARASHIRAIAH
• Keywords: Transfer pricing

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI ... , ! ' #, % &' BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ./ ITA NO. 174/MDS/2016 ) *) / ASSESSMENT YEAR : 2011-12 M/S FOXTEQ SERVICES INDIA PVT. LTD., NO.28 (NP), THIRU VI KA INDUSTRIAL ESTATE, GUINDY, CHENNAI - 600 032. PAN : AAACF 9033 B V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2(1), CHENNAI - 600 034. (,-/ APPELLANT) (./,-/ RESPONDENT) ,- 0 1 / APPELLANT BY : SHRI DEEPAK CHOPRA, ADVOCATE ./,- 0 1 / RESPONDENT BY : SHRI K. PARASHIRAIAH, CIT 2 0 3% / DATE OF HEARING : 28.06.2016 45* 0 3% / DATE OF PRONOUNCEMENT : 01.09.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE ASSESSING OFFICER DATED 26.12.2015, CONSEQUENT TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL. 2. WHEN THE APPEAL WAS TAKEN UP FOR HEARING, SHRI D EEPAK CHOPRA, THE LD. COUNSEL FOR THE ASSESSEE, SUBMITTED THAT HE IS 2 I.T.A. NO.174/MDS/16 PRESSING GROUNDS NO.5, 6 & 7 RAISED IN THE GROUNDS OF APPEAL. IN RESPECT OF OTHER GROUNDS, THE LD. COUNSEL FAIRLY SU BMITTED THAT HE IS NOT PRESSING. THE LD. COUNSEL HAS ALSO MADE AN END ORSEMENT TO THAT EFFECT ON THE APPEAL FOLDER. 3. REFERRING TO THE GROUND NO.5, THE LD. COUNSEL FO R THE ASSESSEE SUBMITTED THAT THE TRANSFER PRICING OFFICE R AND DISPUTE RESOLUTION PANEL HAVE NOT MADE ANY ADJUSTMENT ON AC COUNT OF DIFFERENCE IN WORKING CAPITAL POSITION OF THE ASSES SEE VIS--VIS THE COMPARABLE COMPANIES. ACCORDING TO THE LD. COUNSEL , THE DISPUTE RESOLUTION PANEL HAS TO MAKE PROPER ADJUSTMENT WITH REGARD TO WORKING CAPITAL EMPLOYED BY THE ASSESSEE AS WELL AS THE COMPARABLE CASES. REFERRING TO THE ORDER OF THE DI SPUTE RESOLUTION PANEL, MORE PARTICULARLY AT PARA 8, THE LD. COUNSEL SUBMITTED THAT THE DRP ADMITTED THAT THE ASSESSEE HAS SUBMITTED A DETAILED ARGUMENT WITH REGARD TO WORKING CAPITAL ADJUSTMENT FOR DIFFERENCE IN WORKING CAPITAL BETWEEN THE ASSESSEE AND COMPARABLE . THE DRP HAS ALSO ADMITTED THAT THE DETAILS OF WORKING CAPIT AL ADJUSTED PROFIT MARGIN WERE ALSO SUBMITTED. HOWEVER, THE SAME WAS NOT CONSIDERED ON THE GROUND THAT THE SAME WAS NOT VERI FIABLE AS SUPPORTING DOCUMENTS FOR THE SOURCE MATERIAL WAS NO T PROVIDED. THE WORKING CAPITAL EMPLOYED BY THE ASSESSEE AND CO MPARABLE 3 I.T.A. NO.174/MDS/16 COMPANIES COULD BE ONE OF THE RELEVANT FACTORS FOR THE PURPOSE OF DETERMINING THE ARMS LENGTH PRICE. SINCE SUCH AN EXERCISE WAS NOT DONE, ACCORDING TO THE LD. COUNSEL, THE MATTER NEED S TO BE RECONSIDERED. 4. REFERRING TO GROUND NOS.6 AND 7 WITH REGARD TO S ELECTION / PICKING UP OF COMPARABLES, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DRP HAS NOT ADJUDICATED THE SAME . THE LD. COUNSEL FURTHER SUBMITTED THAT THE TRANSFER PRICING OFFICER HAS TAKEN SOME OTHER COMPARABLE COMPANIES, WHICH ARE NOT FUNC TIONALLY COMPARABLE TO THE ASSESSEE. WITH REGARD TO M/S BEE TEL TELETECH LTD. THE LD. COUNSEL SUBMITTED THAT EVEN THOUGH TPO EXCLUDED M/S MOBILE TELECOMMUNICATIONS LTD. FROM THE LIST OF COM PARABLES, IN RESPECT OF ASNCHAL COMPUTERS LTD., THE TPO HAS TAKE N THE SAME AS COMPARABLE ONE. THE DRP WITHOUT CONSIDERING THE OB JECTION OF THE ASSESSEE ON ITS MERIT, SIMPLY REJECTED THE SAME. T HEREFORE, ACCORDING TO THE LD. COUNSEL, THE MATTER NEEDS TO B E RECONSIDERED AND THE DRP IS EXPECTED TO PASS A SPEAKING ORDER. 5. ON THE CONTRARY, SHRI PARASHIRAIAH, THE LD. DEPA RTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE HAS NOT PROVIDED ANY SOURCE MATERIAL SO AS TO ENABLE THE TPO OR DRP TO V ERIFY THE 4 I.T.A. NO.174/MDS/16 WORKING CAPITAL EMPLOYED BY THE ASSESSEE AND COMPAR ABLE COMPANIES. SINCE THE SOURCE MATERIAL WAS NOT PRODU CED BY THE ASSESSEE, THE DRP HAS RIGHTLY CONFIRMED THE ORDER O F THE TRANSFER PRICING OFFICER. 6. REFERRING TO THE GROUND NOS.6 AND 7 WITH REGARD TO SELECTION OF COMPARABLES AND OBJECTION WITH REGARD TO COMPARA BLES SELECTED BY THE TPO AND DRP, THE LD. D.R. SUBMITTED THAT THE TRANSFER PRICING OFFICER EXAMINED THE MATTER AND FOUND THAT M/S MOBILE TELECOMMUNICATIONS LTD. IS NOT A COMPARABLE COMPANY , THEREFORE, THE SAME WAS EXCLUDED. HOWEVER, M/S AANCHAL COMPUT ERS LTD. WAS INCLUDED IN THE COMPARABLE AS REQUESTED BY THE ASSESSEE. THEREFORE, ACCORDING TO THE LD. D.R., THE DRP FOUND THAT THE MATERIAL FILED BY THE ASSESSEE WAS CONSIDERED BY TH E TPO, HENCE, THE SAME WAS CONFIRMED. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE OBJECTED TO THE ADJUSTMENT MADE BY THE TRANSFER PRI CING OFFICER. WITH REGARD TO WORKING CAPITAL ADJUSTMENT, THE ASSE SSEE CLAIMS THAT THE DIFFERENCE IN WORKING CAPITAL BETWEEN THE ASSES SEE AND THE COMPARABLE COMPANIES WOULD MATERIALLY AFFECT THE PR OFIT 5 I.T.A. NO.174/MDS/16 DETERMINED. THEREFORE, CERTAIN ADJUSTMENT NEEDS TO BE MADE TO BRING THEM ON EQUAL FOOTING. THE ASSESSEE ALSO BRO UGHT TO THE NOTICE OF THE DRP THAT THE WORKING CAPITAL ADJUSTME NT, WHICH WAS TO ENSURE THE PROFIT DERIVED BY THE COMPARABLE COMPANI ES, CAN BE COMPARED WITH THE PROFIT OF THE ASSESSEE. THIS TRI BUNAL IS OF THE CONSIDERED OPINION THAT THE CAPITAL EMPLOYED ON THE ASSESSEE, INCLUDING WORKING CAPITAL, IS ONE OF THE RELEVANT F ACTORS FOR THE PURPOSE OF DETERMINING THE ARMS LENGTH PRICE. THE REFORE, THE CAPITAL EMPLOYED BY THE ASSESSEE, INCLUDING THE WOR KING CAPITAL, AND THAT OF COMPARABLE COMPANIES NEEDS TO BE TAKEN INTO CONSIDERATION. WITHOUT COMPARING THE WORKING CAPI TAL EMPLOYED BY THE COMPARABLE COMPANIES AND THAT OF THE ASSESSEE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THERE CANNOT BE ANY TRANSFER PRICING ADJUSTMENT. 8. MOREOVER, THE PICKING UP OF COMPARABLES OR SELEC TION OF COMPARABLE COMPANIES WAS OBJECTED BY THE ASSESSEE. TRANSFER PRICING OFFICER CONSIDERED THE CLAIM OF THE ASSESSE E AND EXCLUDED M/S MOBIL TELECOMMUNICATIONS LTD. AND INCLUDED M/S AANCHAL COMPUTERS LTD. THE DISPUTE RESOLUTION PANEL SIMPLY REJECTED THE OBJECTION OF THE ASSESSEE WITHOUT ANY FURTHER DISCU SSION IN THE ORDER. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE DRP, 6 I.T.A. NO.174/MDS/16 BEING THE FACT FINDING AUTHORITY WITH REGARD TO INT ERNATIONAL TRANSACTION, IS EXPECTED TO DISPOSE EACH AND EVERY ASPECT WITH REGARD TO FUNCTIONAL SIMILARITY, CAPITAL EMPLOYED B Y THE ASSESSEE, ETC. FOR THE PURPOSE OF DETERMINING THE ARMS LENGT H PRICE. SINCE THE DRP HAS NOT DISCUSSED ANYTHING ON MATERIAL FACTS, T HIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RECONSIDERED. ACCORDINGLY, THE ORDERS OF THE AUTHORITIES BELOW AR E SET ASIDE AND THE ISSUE WITH REGARD TO SELECTION OF COMPARABLES, WORKING CAPITAL ADJUSTMENT AND OBJECTIONS RAISED BY THE ASSESSEE WI TH REGARD TO COMPARABLES SELECTED BY THE TPO, ARE REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL REFER THE MATTER ONCE AGAIN TO THE TRANSFER PRICING OFFICER. THE TR ANSFER PRICING OFFICER SHALL RE-EXAMINE THE MATTER AFRESH IN THE L IGHT OF THE OBJECTIONS THAT MAY BE FILED BY THE ASSESSEE AND TH EREAFTER DECIDE THE SAME IN ACCORDANCE WITH LAW. IF THE ASSESSEE H AS ANY GRIEVANCE OVER THE DECISION OF TPO, IT IS OPEN TO T HE ASSESSEE TO FILE OBJECTIONS AGAINST THE ORDER OF THE TPO AND IF SUCH AN OBJECTION IS FILED, THE ASSESSING OFFICER SHALL REFER THE MATTER TO DRP FOR DISPOSAL OF THE OBJECTIONS RAISED BY THE ASSESSEE. IT IS MA DE VERY CLEAR THAT THE TPO AND DRP SHALL DISPOSE EACH AND EVERY ASPECT RAISED BY THE ASSESSEE AND DISPOSE OF THE OBJECTIONS FILED BY THE ASSESSEE BY 7 I.T.A. NO.174/MDS/16 A SPEAKING ORDER. THE ORDER OF THE DRP SHALL CONTA IN THE REASONS FOR CONCLUSION REACHED IN THE ORDER. 9. WITH THE ABOVE OBSERVATION, THE MATTER IS REMITT ED BACK TO THE FILE OF THE ASSESSING OFFICER. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 1 ST SEPTEMBER, 2016 AT CHENNAI. SD/- SD/- ( ! ' # ) ( ... ) (CHANDRA POOJARI) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 7 /DATED, THE 1 ST SEPTEMBER, 2016. KRI. 0 .389 :9*3 /COPY TO: 1. ,- /APPELLANT 2. ./,- /RESPONDENT 3. ACIT & SECRETARY, DRP-2, BANGALORE. 4. 2 ;3 /CIT(TP), CHENNAI 5. 9< .3 /DR 6. ) = /GF.