Sony India Software Centre Pvt Ltd, Bangalore V. Deputy Commissioner of Income Tax, Central Circle-6(1)(2), Bangalore

ITA 1745/BANG/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6614 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 29-08-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUSAN D GEORGE
• Assessee Lawyers: VACHANA M V
• Keywords: Transfer pricing; International transaction
• Section: 271(1)(c); 143(3); 234B; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI JASON P BOAZ, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR , JUDICIAL MEMBER IT (TP) A NO. 1 74 5 /BANG/201 7 ASSESSMENT YEAR : 20 1 3 - 1 4 M/S. SONY INDIA SOFTWARE CENTRE PVT. LTD., 2 ND FLOOR, SOUTH WING TOWER 2, HIBISCUS EMBASSY TECH VILLAGE (SEZ), OUTER RING ROAD, DEVARABISANAHALLI, VARTHUR HOBLI, BENGALURU 560 103. PAN : AAQCS 7006 K VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-6(1)(2), BENGALURU. APPELLANT RESPONDENT ASSESSEE BY : MS. VACHANA M. V, ADVOCATE REVENUE BY : SMT. SUSAN D. GEORGE, CIT-DR DATE OF HEARING : 22 . 01 .201 9 DATE OF PRONOUNCEMENT : 23 . 01 .201 9 O R D E R PER SHRI JASON P BOAZ, A.M. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE FINAL ORDER OF ASSESSMENT FOR ASSESSMENT YEAR 2013-14, PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 05.07.2017, PURSUANT TO THE DIRECTIONS ISSUED BY THE DISPUTE RESOLUTION PANEL 2, BANGALORE (DRP) UNDER SECTION 144C(5) OF THE ACT ON 17.05.2017. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: IT(TP)A NO. 1745/BANG/2017 PAGE 2 OF 6 1. THE LD. AO ERRED IN ASSESSING THE TOTAL INCOME AT INR 42,39,47,548/- AS AGAINST RETURNED INCOME OF INR 14,88,65,560/- . 2. THE LD. AO/ TRANSFER PRICING OFFICER ('TPO') ERRED IN MAKING AN ADDITION OF INR 27,40,06.857 AND INR 10,75,131 TO THE TOTAL INCOME OF THE APPELLANT AS ADJUSTMENT IN RELATION TO THE ARM'S LENGTH PRICE OF THE SOFTWARE DEVELOPMENT SERVICES TRANSACTION ENTERED INTO BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISES ('AES') AND OUTSTANDING RECEIVABLES RESPECTIVELY; 3. THE LD. AO/ TPO HAVE ERRED, BY NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME-TAX RULES, 1962 ('THE RULES'), AND BY CONDUCTING A FRESH ECONOMIC ANALYSIS FOR THE DETERMINATION OF ALP FOR THE INTERNATIONAL TRANSACTION OF SOFTWARE DEVELOPMENT SERVICES AND HOLDING THAT THE SAID TRANSACTION IS NOT AT ARM'S LENGTH; 4. THE LD. AO/ TPO HAVE ERRED, BY REJECTING THE USE OF MULTIPLE YEAR DATA BY THE ASSESSEE IN DETERMINING THE ARM'S LENGTH NATURE OF THE INTERNATIONAL TRANSACTION OF SOFTWARE DEVELOPMENT SERVICES AND BY DETERMINING THE ARM'S LENGTH MARGIN/PRICE USING ONLY FY 2012-13 DATA, INCLUDING SUCH DATA AS WAS NOT AVAILABLE TO THE APPELLANT AT THE TIME OF COMPLYING WITH THE TRANSFER PRICING DOCUMENTATION REQUIREMENTS. 5. WITHOUT PREJUDICE TO THE TRANSFER PRICING DOCUMENTATION MAINTAINED BY THE APPELLANT, THE LD. AO/ TPO HAVE FAILED TO APPRECIATE THAT LARSEN & TOUBRO INFOTECH LTD. AND PERSISTENT SYSTEMS LTD. ARE NOT FUNCTIONALLY COMPARABLE TO THE APPELLANT, AND THEREFORE ERRED IN CONSIDERING THE AFOREMENTIONED COMPANIES AS COMPARABLES. 6. WITHOUT PREJUDICE TO THE TRANSFER PRICING DOCUMENTATION MAINTAINED BY THE APPELLANT, CG-VAK SOFTWARE AND EXPORTS LIMITED, R S SOFTWARE (INDIA) PVT. LTD, AND MINDTREE LIMITED ARE LIABLE TO BE REJECTED AS NOT BEING FUNCTIONALLY COMPARABLE TO THE APPELLANT, AND HENCE SHOULD BE DULY EXCLUDED AS COMPARABLES THOUGH THE SPECIFIC GROUND WAS NOT RAISED BEFORE THE LD. AO/ TPO IN THIS REGARD. 7. THE LD. AO / TPO ERRED IN REJECTING AKSHAY SOFTWARE TECHNOLOGIES LIMITED. CAT TECHNOLOGIES LIMITED. CIGNITI TECHNOLOGIES LIMITED. SASKEN COMMUNICATION TECHNOLOGIES LIMITED AND LUCID SOFTWARE LIMITED AS COMPARABLES BY APPLYING UNREASONABLE COMPARABILITY CRITERIA. 8. THE LD. AO/ TPO ERRED IN REJECTING HELIOS & MATHESON INFORMATION TECHNOLOGY LIMITED AND R SYSTEMS INTERNATIONAL LIMITED (SEGMENTAL) AS COMPARABLES BY USING 'COMPANIES HAVING DIFFERENT FINANCIAL YEAR ENDING (I.E. NOT MARCH 31, 2013)/ FINANCIAL DATA WHICH DOES NOT FALL WITHIN 12 MONTH PERIOD I.E. 01-04-2012 TO 31-03-2013' AS A COMPARABILITY CRITERION TO REJECT COMPARABLES; IT(TP)A NO. 1745/BANG/2017 PAGE 3 OF 6 9. THE LD. AO/ TPO ERRED IN REJECTING ZYLOQ SYSTEMS LIMITED AS COMPARABLE BY USING 'EMPLOYEE COST LESS THAN 25% OF TURNOVER' AS A COMPARABILITY CRITERION TO REJECT COMPARABLES; 10. THE LD. AO/ TPO ERRED IN REJECTING HELIOS & MATHESON INFORMATION TECHNOLOGY LIMITED AND EVOKE TECHNOLOGIES LIMITED AS COMPARABLES BY USING 'COMPANIES HAVING EXPORT SERVICE INCOME LESS THAN 75% OF THE SALES' AS A COMPARABILITY CRITERION TO REJECT COMPARABLES; 11. THE LD AO/ TPO HAVE ERRED BY ACCEPTING LARSEN & TOUBRO INFOTECH LTD AND REJECTING AKSHAY SOFTWARE TECHNOLOGIES LIMITED AS COMPARABLES BY USING INFORMATION RECEIVED ON EXERCISING POWERS UNDER SECTION 133(6) TO ACCEPT/REJECT COMPANIES AS COMPARABLES. 12. WITHOUT PREJUDICE TO GROUNDS 5. 6 AND 11 ABOVE, THE LD. AO/ TPO HAVE ERRED BY WRONGLY COMPUTING THE OPERATING MARGINS OF CG-VAK SOFTWARE AND EXPORTS LIMITED. LARSEN AND TOUBRO INFOTECH LIMITED AND PERSISTENT SYSTEMS LIMITED: 13. THE LD. AO/ TPO HAVE ERRED BY DISALLOWING THE WORKING CAPITAL ADJUSTMENT, LAWFULLY MADE BY THE APPELLANT. 14. THE LD. AO/ TPO ERRED IN TESTING THE OUTSTANDING RECEIVABLES FROM AES AS A SEPARATE INTERNATIONAL TRANSACTION WITHOUT APPRECIATING THAT THE SAME IS A CLOSELY LINKED TRANSACTION TO THE PRIMARY INTERNATIONAL TRANSACTIONS OF SOFTWARE DEVELOPMENT SERVICES AND SUPPORT SERVICES AND THAT THE WORKING CAPITAL ADJUSTMENT TAKES INTO ACCOUNT THE IMPACT OF THE CREDIT PERIOD EXTENDED. 15. THE LD AO/ TPO HAVE ERRED IN MAKING AN ADJUSTMENT IN RELATION TO OUTSTANDING RECEIVABLES BY USING THE COMPARABLE UNCONTROLLED PRICE ('CUP') METHOD WITHOUT PERFORMING ANY COMPARABILITY ANALYSIS. 16. THE LD AO/ TPO HAVE ERRED BY NOT MAKING SUITABLE ADJUSTMENTS TO ACCOUNT FOR THE DIFFERENCES IN THE RISK PROFILE OF THE ASSESSEE VIS-A-VIS THAT OF THE COMPARABLES. 17. THE LD. AO ERRED IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT. 18. THE LD. AO ERRED, IN INITIATING PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. 2.1 AT THE OUTSET OF THE HEARING, THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS FILED LETTER DATED 13.12.2018 ADDRESSED TO THE HONBLE MEMBERS, B BENCH OF ITAT, BANGALORE, REQUESTING FOR WITHDRAWAL OF THE ASSESSEES PRESENT APPEAL IN IT(TP)A NO.1745/BANG/2017 FOR ASSESSMENT YEAR 2013-14; IN VIEW OF IT(TP)A NO. 1745/BANG/2017 PAGE 4 OF 6 THE ASSESSEE HAVING ENTERED INTO A UNILATERAL APA WITH CBDT ON 31.10.2018. THE AFORESAID LETTER OF THE ASSESSEE DATED 13.12.2018 IS EXTRACTED HEREUNDER: IT(TP)A NO. 1745/BANG/2017 PAGE 5 OF 6 2.2 IN VIEW OF THE ASSESSEES AFORESAID LETTER DATED 13.12.2018 WITHDRAWING ITS APPEAL IN IT(TP)A NO.1745/BANG/2017 FOR ASSESSMENT YEAR 2013-14, THE GROUNDS RAISED THEREIN AT SL. NOS. 1 TO 18 ARE RENDERED INFRUCTUOUS AND ACCORDINGLY DISMISSED AS WITHDRAWN. 3. IN THE RESULT, THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2013-14 IS DISMISSED AS WITHDRAWN. IT(TP)A NO. 1745/BANG/2017 PAGE 6 OF 6 ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF JANUARY, 2019. SD/- SD/ - SD/ - (LALIET KUMAR) JUDICIAL MEMBER (JASON P BOAZ) ACCOUNTANT MEMBER BANGALORE. DATED: 23 RD JANUARY, 2019. /NS/* COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.