M/s.Aptean Software India Pvt. Ltd., Bangalore V. Deputy Commissioner of Income-Tax, Bangalore

ITA 1826/BANG/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5510 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 26-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: G S PRASHANTH
• Keywords: Wholly owned subsidiary
• Section: 143(3)

Judgement Text

IT(TP)A.1826/BANG/2016 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'A', BENGALURU BEFORE SHRI. VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI. S. JAYARAMAN, ACCOUNTANT MEMBER I.T(TP).A NO.1826/BANG/2016 (ASSESSMENT YEAR : 2012-13) M/S. APTEAN SOFTWARE INDIA P. LTD, (FORMERLY CDC SOFTWARE INDIA P. LTD), LEVEL-5 (8 TH FLOOR), GOLDEN HEIGHTS, NO.1/2, 59 TH C CROSS, 4 TH M BLOCK, RAJAJINAGAR, BENGALURU 560 010 .. APPELLANT PAN : AACCP7154M V. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE -1(1)(2)WARD 14(5), BENGALURU .. RESPONDE NT ASSESSEE BY : SHRI. G. S. PRASHANTH, CA REVENUE BY : SHRI. G. R. REDDY, CIT DR-I HEARD ON : 09.02.2017 PRONOUNCED ON : 21.04.2017 O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINS T THE ORDER PASSED U/S. 143(3) RW 144C DT.25.08.2016 BY THE AO, IN PURSUANCE OF THE DIRECTIONS OF THE DRP, FOR THE ASSESSMENT YEAR 20 12-13. 02. M/S. APTEAN SOFTWARE INDIA P. LTD, THE ASSESSEE , IS A WHOLLY OWNED SUBSIDIARY OF PIVOTAL CORPORATION CANADA, PREVIOUS LY KNOWN AS CDC IT(TP)A.1826/BANG/2016 PAGE - 2 SOFTWARE INDIA P. LTD, IS PRIMARILY ENGAGED IN SOFT WARE DEVELOPMENT SERVICES IN VARIOUS SECTORS FOR CLIENTS OF THE HOL DING COMPANY. IT PROVIDES PROGRAMMING, CUSTOMISATION, MODIFICATION AND SUPPOR T SERVICES TO THE HOLDING COMPANYS INFORMATION TECHNOLOGY SOFTWARE A ND SYSTEMS ALSO. IT HAS ENTERED INTO A SERVICE AGREEMENT WITH THE HOLDI NG COMPANY TO RENDER THESE SERVICES WHICH ARE CHARGED TO THE HOLDING COM PANY ON A FULLY LOADED COST BASIS AT A PREDETERMINED MARK-UP ON SUCH COSTS . FOR THE IMPUGNED ASSESSMENT YEAR, IT FILED ITS RETURN ON 29.11.2 012 DECLARING A TOTAL INCOME OF RS.6,44,51,680/-. THE TPO PASSED AN OR DER U/S.92CA DETERMINING THE AVERAGE NET OPERATING MARGIN AT 22 .63% AND PROVIDED WORKING CAPITAL ADJUSTMENT AT 1.27% .THUS, HE MA DE AN ADJUSTMENT OF RS.3,88,36,358/- TOWARDS SOFTWARE DEVELOPMENT SERVI CES. AGGRIEVED , THE ASSESSEE FILED ITS OBJECTIONS BEFORE THE DRP. THE DRP REJECTED ALMOST ALL THE ASSESSEES OBJECTIONS BUT DIRECTED THE TPO T O EXCLUDE SIX COMPARABLES I.E., ICRA TECHNO ANALYTICS, SPRY RESOU RCES INDIA P. LTD, M/S. GENESYS INTERNATIONAL CORPORATION LTD, INFOSYS LTD, R. S. SOFTWARE (INDIA) LTD, SASKEN COMMUNICATION TECHNOLOGIES LTD, FROM TH E LIST OF COMPARABLES. CONSEQUENTLY, THE A O GAVE EFFECT TO THE DIRECTI ONS OF THE DRP AND PASSED THE IMPUGNED ORDER . AGGRIEVED AGAINST THE ORDER, THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL WITH FOLLOWING GROUNDS : IT(TP)A.1826/BANG/2016 PAGE - 3 IT(TP)A.1826/BANG/2016 PAGE - 4 IT(TP)A.1826/BANG/2016 PAGE - 5 03. THE A R PRIMARILY ARGUED THAT THE DRP ERRED I N INCLUDING THE FOLLOWING COMPANIES WHICH ARE GIANTS WHEN COMPARED WITH THE ASSESSEE AND HENCE ERRED IN RETAINING THEM IN THE LIST OF CO MPARABLES : 1. L & T INFOTECH LTD, 2. PERSISTENT SYSTEMS LTD, 3. MINDTREE LTD. IT(TP)A.1826/BANG/2016 PAGE - 6 IN THIS REGARD, HE RELIED ON THIS TRIBUNAL DECISI ON IN ITS OWN CASE FOR A Y 2008-09 REPORTED IN 60 TAXMANN.COM 49, ITO V. MAXIM INDIA INTEGRATED CIRCUIT DESIGN P. LTD IN IT(TP)A.28/BANG /2002, DT.31.03.2016. ON TURNOVER FILTER, THE AR RELIED ON ACIT V. MCAFEE INDIA P. LTD 68 TAXMANN.COM 298 (BANG-TRIB). FURTHER, THE AR SOUG HT EXCLUSION ON FUNCTIONAL DISSIMILARITY ALSO BASED ON THIS TRIBUNA L DECISION IN CISCO SYSTEMS (INDIA) P. LTD V. DCIT -50 TAXMANN.COM 280 , AY . 2 009-10 AND SAXO INDIA P. LTD V. ACIT -176 TTJ 540 (DEL), DCIT V. EL ECTRONICS FOR IMAGING INDIA P. LTD 70 TAXMANN.COM 299 (BANG-TRIB), A Y . 2010-11. THUS, THE AR SOUGHT REJECTION OF THE COMPARABLES BOTH ON FUNCT IONAL DISSIMILARITY AS WELL AS ON TURNOVER FILTER. 04. EARLIER, THE ITAT HAD ACCEPTED THE TURNOVER RANGE OF RS. 1 TO 200 CRORES. THE ITAT OBSERVED THAT THIS RANGE CANNO T BE FIXED, AS FACTS MAY VARY FROM CASE TO CASE. BUT THIS METHOD OF ADOP TING 200 CRORES WITHOUT PROPER BASIS OR LOGIC RESULTED IN UNREASON ABLE JUDGEMENTS. HENCE, THE ITAT IN THE MCAFEE RULING, SUPRA, HELD THAT A RANGE OF UPPER LIMIT AT TEN TIMES AND LOWER LIMIT OF TEN TIMES I.E ., ONE TENTH CAN BE ADOPTED. THE ITAT IN THE ABOVE CASE ALSO HELD THAT THERE COULD MARGIN OF VARIATIONS BUT THESE BROAD PARAMETERS COULD BE ADO PTED ON UNIFORM BASIS. IN THE ASSESSEES CASE, ITS TURNOVER IS 38.07 CRO RES. THEREFORE, FOLLOWING MCAFEE RULING, THE TURNOVER RANGE THAT COULD BE TAK EN IN THE COMPARABLES SHOULD BE 3.8 CRORES TO 380 CRORES. THEREFORE, ANY COMPANY NOT FALLING IT(TP)A.1826/BANG/2016 PAGE - 7 WITHIN THE SAID RANGE SHOULD BE EXCLUDED ON TURNOVE R FILTER. HENCE, THE TURNOVER OF THE FOLLOWING COMPARABLES ARE OUTSIDE T HE SCOPE :- COMPARABLES TURNOVER RS. L & T INFOTECH LTD 29,595,545,449 PERSISTENT SYSTEMS LTD 8,103,640,000 MINDTREE LTD 12,558,000,000 THE AR ALSO SUBMITTED THAT IF THE TURNOVER PLE A IS CONSIDERED IN ITS FAVOUR, ALL OTHER GROUNDS BECOME ACADEMIC. 05. WE HEARD THE RIVAL SUBMISSIONS AND FIND MERIT I N THE ASSESSSEES SUBMISSIONS. FOLLOWING THIS TRIBUNAL RULING IN AC IT V. MCAFEE INDIA P. LTD 68 TAXMANN.COM 298 (BANG-TRIB), THE ABOVE 3 COMPA RABLES ARE DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 06. IN THE RESULT, THE ASSESSEES APPEAL IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST DAY OF APRIL, 2017. SD/- SD/- (VIJAY PAL RAO) (S.JAYARAMAN) JUDICIAL MEMBER A CCOUNTANT MEMBER