DCIT, New Delhi V. M/s. Bay Packet Technologies Pvt. Ltd., New Delhi

ITA 1809/DEL/2012

• Counselvise Citation: 180920114 RSA 2012
• Duration Of Justice: 1 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-09-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 18-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M B REDDY
• Assessee Lawyers: PAWAN KUMAR SHRI ROHIT TIWARI; SHOBHIT NARULA
• Keywords: Transfer pricing; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH A AA A : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND SHRI SHRI SHRI SHRI RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV, ,, , JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ITA NO. ITA NO. ITA NO. ITA NO.1809/DEL/2012 1809/DEL/2012 1809/DEL/2012 1809/DEL/2012 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR : : : : 2005 2005 2005 2005- -- -06 0606 06 DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -1(1), 1(1), 1(1), 1(1), NEW DELHI NEW DELHI NEW DELHI NEW DELHI. .. . VS. VS. VS. VS. M/S BAY PACKET TECHNOLOGIES M/S BAY PACKET TECHNOLOGIES M/S BAY PACKET TECHNOLOGIES M/S BAY PACKET TECHNOLOGIES PVT.LTD., PVT.LTD., PVT.LTD., PVT.LTD., (PRESENTLY KNOWN AS AGNITY INDIA (PRESENTLY KNOWN AS AGNITY INDIA (PRESENTLY KNOWN AS AGNITY INDIA (PRESENTLY KNOWN AS AGNITY INDIA TECHNOLOG TECHNOLOG TECHNOLOG TECHNOLOGIES IESIES IES PVT.LTD.), PVT.LTD.), PVT.LTD.), PVT.LTD.), 11/6B, 3 11/6B, 3 11/6B, 3 11/6B, 3 RD RDRD RD FLOOR, FLOOR, FLOOR, FLOOR, SHANTI CHAMBER, PUSA ROAD, SHANTI CHAMBER, PUSA ROAD, SHANTI CHAMBER, PUSA ROAD, SHANTI CHAMBER, PUSA ROAD, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. PAN : PAN : PAN : PAN : AABCB2399B. AABCB2399B. AABCB2399B. AABCB2399B. (APPELLANT) (RESPONDENT) CROSS OBJECTION NO.89/DEL/2013 CROSS OBJECTION NO.89/DEL/2013 CROSS OBJECTION NO.89/DEL/2013 CROSS OBJECTION NO.89/DEL/2013 ASSESSM ASSESSM ASSESSM ASSESSMENT YEAR : ENT YEAR : ENT YEAR : ENT YEAR : 2005 2005 2005 2005- -- -06 0606 06 M/S BAY PACKET TECHNOLOGIES M/S BAY PACKET TECHNOLOGIES M/S BAY PACKET TECHNOLOGIES M/S BAY PACKET TECHNOLOGIES PVT.LTD., PVT.LTD., PVT.LTD., PVT.LTD., (PRESENTLY KNOWN AS AGNITY (PRESENTLY KNOWN AS AGNITY (PRESENTLY KNOWN AS AGNITY (PRESENTLY KNOWN AS AGNITY INDIA TECHNOLOGIES PVT.LTD.), INDIA TECHNOLOGIES PVT.LTD.), INDIA TECHNOLOGIES PVT.LTD.), INDIA TECHNOLOGIES PVT.LTD.), C CC C- -- -42, SECTOR 42, SECTOR 42, SECTOR 42, SECTOR- -- -58, 58, 58, 58, NOIDA, NOIDA, NOIDA, NOIDA, U.P. U.P. U.P. U.P. PAN : AABCB2399B. PAN : AABCB2399B. PAN : AABCB2399B. PAN : AABCB2399B. VS. VS. VS. VS. DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -1(1), 1(1), 1(1), 1(1), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI M.B.REDDY, CIT-DR. ASSESSEE BY : SHRI PAWAN KUMAR, SHRI ROHIT TIWARI & SHRI SHOBHIT NARULA, ARS. ORDER ORDER ORDER ORDER PER G. PER G. PER G. PER G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VP VPVP VP : : : : ITA NO.1809/DEL/2012 : ITA NO.1809/DEL/2012 : ITA NO.1809/DEL/2012 : ITA NO.1809/DEL/2012 :- -- - THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A)-XX, NEW DELHI DATED 19 TH DECEMBER, 2011 FOR THE AY 2005-06. ITA-1809/D/2012 & C.O.89/D/2013 2 2. THE ONLY GROUND RAISED BY THE REVENUE READS AS U NDER:- THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN DEL ETING THE ADDITION OF RS.1,27,87,016/- ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAS DISCLOSED THE OPERATING PROFIT AT 13.68%. THE TPO WORKED OUT THE OPERATING PROFIT AT 23.40%. HE PROPOSED THE ADJUSTMENT OF ` 1,27,87,016/- BY DETERMINING THE ARMS LENGTH PRICE ON TNMM BASIS APPLYING THE O PERATING PROFIT AT 23.40% AS AGAINST 13.68% DISCLOSED BY THE ASSESSEE. ON APPEAL, LEARNED CIT(A) FOUND THAT WHILE DETERMINING THE ARM S LENGTH PRICE, THE TPO CONSIDERED FIVE COMPARABLES WHICH INCLUDED INFO SYS TECHNOLOGIES LTD. AND SATYAM COMPUTER SERVICES LTD. HE FOUND TH AT BOTH THE ABOVE COMPARABLES WERE CONSIDERED BY THE ITAT IN ASSESSEE S OWN CASE IN AY 2006-07 IN WHICH THE ITAT EXCLUDED THESE TWO COMPAN IES BEING COMPARABLES TO THE ASSESSEE. THE CIT(A), FOLLOWING THE DECISION OF ITAT IN ASSESSEES OWN CASE, EXCLUDED INFOSYS TECHN OLOGIES LTD. AS WELL AS SATYAM COMPUTER SERVICES LTD. FROM THE LIST OF COMPARABLES AND FOUND THAT THE OPERATING PROFIT IN RESPECT OF R EMAINING THREE COMPANIES WAS 15.19%. HE, THEREFORE, HELD THAT THE DIFFERENCE BETWEEN THE OPERATING PROFIT OF THE ASSESSEE AND TH E OPERATING PROFIT OF THE COMPARABLES FALLS WITHIN THE AMBIT OF THE PR OVISO TO SECTION 92C(2) OF THE INCOME-TAX ACT, 1961. ACCORDINGLY, H E DELETED THE ADDITION. THE REVENUE, AGGRIEVED WITH THE ORDER OF LEARNED CIT(A), IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D PERUSED THE MATERIAL PLACED BEFORE US. WE FIND TAT THE ISSUE U NDER CONSIDERATION IS SQUARELY COVERED BY THE DECISION OF ITAT IN ASSESSE ES OWN CASE FOR AY 2006-07 VIDE ITA NO.3856/DEL/2010, WHEREIN THE ITAT HELD AS UNDER:- ITA-1809/D/2012 & C.O.89/D/2013 3 5.2 VARIOUS ARGUMENTS, AS STATED EARLIER, WERE TAK EN BEFORE THE DRP WHICH INTER-ALIA INCLUDED REJECTION OF COMPARABLE CASES; APPLICATION OF ARBITRARY FILTER O F WAGE TO SALES RATIO; IGNORING THAT THE ASSESSEE IS A LIMITE D RISK COMPANY; INCLUSION OF INFOSYS TECHNOLOGIES LTD.; AN D INCLUSION OF SATYAM COMPUTERS SERVICES LTD. IN SPIT E OF THE FACT THAT ITS DATA IS NOT RELIABLE AS PUBLICLY KNOW N. ON THE BASIS OF THESE ARGUMENTS, THE DRP EXCLUDED THE CASE OF SATYAM COMPUTERS SERVICES LTD., THEREBY REDUCING TH E ARMS LENGTH MARGIN TO 25.6%. IT IS ARGUED THAT TH E CASE OF THE ASSESSEE IS NOT COMPARABLE WITH INFOSYS TECHNOL OGIES LTD., THE REASON BEING THAT THE LATTER IS GIANT IN THE AREA OF DEVELOPMENT OF SOFTWARE AND IT ASSUMES ALL RISKS, L EADING TO HIGHER PROFIT. ON THE OTHER HAND, THE ASSESSEE IS A CAPTIVE UNIT OF ITS PARENT COMPANY IN THE USA AND I T ASSUMES ONLY LIMITED CURRENCY RISK. HAVING CONSIDE RED THESE POINTS, WE ARE OF THE VIEW THAT THE CASE OF A FORESAID INFOSYS AND THE ASSESSEE ARE NOT COMPARABLE AT ALL AS SEEN FROM THE FINANCIAL DATA ETC. OF THE TWO COMPANIES MENTIONED EARLIER IN THIS ORDER. THEREFORE, WE ARE OF THE VIEW THAT THIS CASE IS REQUIRED TO BE EXCLUDED. ON CE THAT IS DONE, IT IS THE ACCEPTED POSITION OF BOTH THE PARTI ES THAT THE RESULTS OF THE ASSESSEE ARE IN LINE WITH THE MEAN M ARGIN OF COMPARABLE CASES EVEN IF NO ADJUSTMENT IS MADE ON ACCOUNT OF CAPITAL ETC. THEREFORE, IT IS HELD THA T NO ADJUSTMENT WAS REQUIRED TO BE MADE TO THE RESULTS DECLARED BY THE ASSESSEE COMPANY. 5. IT WAS FURTHER POINTED OUT BY THE LEARNED COUNSE L THAT THE ABOVE DECISION OF ITAT HAS BEEN UPHELD BY HON'BLE JURISDI CTIONAL HIGH COURT VIDE ORDER DATED 10 TH JULY, 2013 IN ITA NO.1204/2011, WHEREIN HON'BLE JURISDICTIONAL HIGH COURT HELD AS UNDER:- 8. IT IS A COMMON CASE THAT SATYAM COMPUTER SERVIC ES LTD. SHOULD NOT BE TAKEN INTO CONSIDERATION. THE T RIBUNAL FOR VALID AND GOOD REASONS HAS POINTED OUT THAT INF OSYS TECHNOLOGIES LTD. CANNOT BE TAKEN AS A COMPARABLE I N THE PRESENT CASE. THIS LEAVES L&T INFOTECH LTD. WHICH GIVES US THE FIGURE OF 11.11%, WHICH IS LESS THAN THE FIGURE OF 17% MARGIN AS DECLARED BY THE RESPONDENT-ASSESSEE. THI S IS THE FINDING RECORDED BY THE TRIBUNAL. THE TRIBUNAL IN THE IMPUGNED ORDER HAS ALSO OBSERVED THAT THE ASSESSEE HAD FURNISHED DETAILS OF WORKABLES IN RESPECT OF 23 COM PANIES AND THE MEAN OF THE COMPARABLES WORKED OUT TO 10%, AS AGAINST THE MARGIN OF 17% SHOWN BY THE ASSESSEE. D ETAILS ITA-1809/D/2012 & C.O.89/D/2013 4 OF THESE COMPANIES ARE MENTIONED IN PARA 5 OF THE IMPUGNED ORDER. 9. IN VIEW OF THE AFORESAID POSITION, WE DO NOT THI NK THAT ANY SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDER ATION. THE APPEAL IS DISMISSED. 6. FROM THE ABOVE, IT IS EVIDENT THAT HON'BLE JURIS DICTIONAL HIGH COURT HAS ALSO APPROVED THE FINDING OF THE ITAT THA T INFOSYS TECHNOLOGIES LTD. AS WELL AS SATYAM COMPUTER SERVIC ES LTD. CANNOT BE TAKEN AS COMPARABLES TO THE ASSESSEE COMPANY. THE CIT(A) HAS ALLOWED THE RELIEF ONLY BY EXCLUDING THESE TWO COMP ARABLES FROM THE LIST OF COMPARABLES TAKEN BY THE TPO. IN VIEW OF T HE ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LEARNED CIT(A). THE SAME IS SUSTAINED AND THE REVENUES APPEAL IS DISMISSED. C.O. NO.89/DEL/2013 : C.O. NO.89/DEL/2013 : C.O. NO.89/DEL/2013 : C.O. NO.89/DEL/2013 :- -- - 7. AT THE TIME OF HEARING BEFORE US, THE LEARNED CO UNSEL FAIRLY STATED THAT THE CROSS-OBJECTION OF THE ASSESSEE IS ONLY IN SUPPORT OF THE ORDER OF LEARNED CIT(A). THEREFORE, THE SAME IS TREATED AS INFRUCTUOUS WHICH DOES NOT REQUIRE ANY ADJUDICATION AND, ACCORDINGLY, FOR STATISTICAL PURPOSES, TREATED AS DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED WHEREAS THE CROSS-OBJECTION OF THE ASSESSEE IS TREATED AS DISMI SSED BEING INFRUCTUOUS. DECISION PRONOUNCED IN THE OPEN COURT ON 27 TH SEPTEMBER, 2013. SD/- SD/- ( (( (RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV) )) ) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT DATED : 27.09.2013 VK. ITA-1809/D/2012 & C.O.89/D/2013 5 COPY FORWARDED TO: - 1. ASSESSEE : M/S BAY PACKET TECHNOLOGIES PVT.LT D., M/S BAY PACKET TECHNOLOGIES PVT.LTD., M/S BAY PACKET TECHNOLOGIES PVT.LTD., M/S BAY PACKET TECHNOLOGIES PVT.LTD., (PRESENTLY KNOWN AS AGNITY INDIA TECHNOLOGIES (PRESENTLY KNOWN AS AGNITY INDIA TECHNOLOGIES (PRESENTLY KNOWN AS AGNITY INDIA TECHNOLOGIES (PRESENTLY KNOWN AS AGNITY INDIA TECHNOLOGIES PVT.LTD.), C PVT.LTD.), C PVT.LTD.), C PVT.LTD.), C- -- -42, SECTOR 42, SECTOR 42, SECTOR 42, SECTOR- -- -58, NOIDA, U.P. 58, NOIDA, U.P. 58, NOIDA, U.P. 58, NOIDA, U.P. 2. REVENUE : DEPUTY COMMISSIONER OF INCO DEPUTY COMMISSIONER OF INCO DEPUTY COMMISSIONER OF INCO DEPUTY COMMISSIONER OF INCOME TAX, ME TAX, ME TAX, ME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -1(1), NEW DELHI. 1(1), NEW DELHI. 1(1), NEW DELHI. 1(1), NEW DELHI. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR