Colt Technology Services India Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 1853/DEL/2014

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4163 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 13-10-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 28-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ATUL MITTAL
• Keywords: Transfer pricing; International transaction; Working capital adjustments; Competent authority; Notional interest
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I - 1 , NEW DELHI BEFORE SH. N. K. SAINI, A M AND SH. KULDIP SINGH , JM ITA NO. 1853 /DEL/201 4 : ASSTT. YEAR : 2009 - 10 COLT TECHNOLOGY SERVICES IND IA PVT. LTD., 103, ASHOKA ESATE, BARAKHAMBA ROAD, NEW DELHI - 110001 VS INCOME TAX OFFICER, WARD - 3(4), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. A A CCC3512G ASSESSEE BY : SH. ATUL MITTAL , CA REVENUE BY : SH. NEERAJ KUMAR , S R. DR DATE OF HEARING : 13.10 .201 6 DATE OF PRONOUNCEMENT : 14 .10 .201 6 ORDER PER N. K. SAINI, AM: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 29.01 .2014 OF THE AO PASSED U/S 143(3) R.W.S. 144C(13) OF THE INCOME TAX AC T, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 1. THE ORDER DATED JANUARY 29, 2014, PASSED BY THE LEARNED INCOME TAX OFFICER, WARD 3(4), NEW DELHI (HEREINAFTER REFERRED AS 'LD. AO') UNDER SECTION 143 (3) READ WITH SECTION 144C OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED AS 'THE ACT') IS BAD IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE. IT A NO. 1853 /DEL /201 4 COLT TECHNOLOGY SERVICE S INDIA PVT. LTD. 2 2. THE REFERENCE MADE BY THE LD. AO TO THE LEARNED ADDITIONAL COMMISSIONER OF INCOME TAX, TPO - L(L), N EW DELHI (HEREINAFTER REFERRED AS 'LD. TPO') SUFFERS FROM JURISDICTIONAL ERROR AS THE LD. AO HAS NOT RECORDED ANY REASON ON THE BASIS OF WHICH HE REACHED THE CONCLUSION THAT IT WAS NECESSARY OR EXPEDIENT TO REFER THE MATTER TO THE LD. TPO. 3. THE LD. AO AS WELL AS THE LD. TPO AND THE HON'BLE DISPUTE RESOLUTION PANEL (HEREINAFTER REFERRED AS 'HON'BLE DRP') HAVE ERRED IN LAW AS WELL AS FACTS OF THE CASE IN NOT ACCEPTING THE ARM'S LENGTH PRICE (HEREINAFTER REFERRED AS 'ALP') DETERMINED BY THE APPELLANT. 4. THE LD. AO / LD. TPO / HON'BLE DRP HAVE ERRED IN IGNORING THE FACT THAT THE APPELLANT IS ENTITLED TO DEDUCTION UNDER SECTION 10A OF THE ACT ON ITS PROFITS FROM PROVISION OF INFORMATION TECHNOLOGY ENABLED SERVICES ('ITES') AND CONTRACT SOFTWARE DEVELOPMEN T ('CSD') SERVICES TO OVERSEAS ASSOCIATED ENTERPRISES AND THERE IS NO UNTOWARD MOTIVE TO DERIVE ANY TAX ADVANTAGE BY MANIPULATING TRANSFER PRICES OF INTERNATIONAL TRANSACTION UNDERTAKEN BY IT WITH ITS ASSOCIATED ENTERPRISES. 5. THE LD. AO / LD. TPO / HO N'BLE DRP HAVE ERRED IN DETERMINING THE ALP ON THE BASIS OF DATA FOR FINANCIAL YEAR ('FY') 2008 - 09 ONLY AND IGNORING THE DATA FOR TWO PRIOR FINANCIAL YEARS I.E. FY 2007 - 08 AND FY 2006 - 07. 6. THE LD. AO / LD. TPO / HON'BLE DRP HAVE ERRED IN REJECTING THE ANALYSIS CONDUCTED BY THE APPELLANT AND CONDUCTING A FRESH COMPARABILITY ANALYSIS FOR IT A NO. 1853 /DEL /201 4 COLT TECHNOLOGY SERVICE S INDIA PVT. LTD. 3 DETERMINING THE ALP WHICH DID NOT TAKE INTO CONSIDERATION THE FUNCTIONS AND RISKS APPLICABLE TO THE APPELLANTS BUSINESS. 7. THE LD. AO / LD. TPO / HON'BLE DRP HAVE ERRE D IN REJECTING THE QUANTITATIVE FILTERS ADOPTED BY THE APPELLANT, AND ADOPTING INAPPROPRIATE QUANTITATIVE FILTERS FOR CARRYING OUT A FRESH COMPARABILITY ANALYSIS. 8. THE LD. AO / LD. TPO / HON'BLE DRP HAVE ERRED IN ARBITRARILY REJECTING CERTAIN COMPANIE S SELECTED BY THE APPELLANT AS COMPARABLES IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED, AND IN ACCEPTING CERTAIN COMPANIES WHICH ARE NOT COMPARABLE TO THE APPELLANT, FOR DETERMINING ALP. 9. THE LD. AO / LD. TPO / HON'BLE DRP HAVE E RRED IN ACCEPTING COMPANIES WITH EXCEPTIONALLY HIGH OPERATING MARGINS AS COMPARABLES OF THE APPELLANT ON AN ARBITRARY BASIS. 10. THE LD. AO / LD. TPO / HON'BLE DRP HAVE ERRED IN REJECTING COMPANIES WITH LOW PROFITS / LOSSES AS COMPARABLES OF THE APPELLANT ON AN ARBITRARY BASIS. 11. THE LD. AO / LD. TPO / HON'BLE DRP HAVE ERRED IN NOT ALLOWING ANY RISK ADJUSTMENTS TO THE APPELLANT AS IT IS REMUNERATED ON A COST PLUS MARK - UP BASIS AND UNDERTAKES MINIMAL RISKS. 12. THE LD. AO / TPO / DRP HAS ERRED IN NOT AL LOWING THE BENEFIT OF 5% AS PROVIDED BY PROVISO TO SECTION 92C(2) OF THE ACT EVEN IF THE DIFFERENCE IN THE VALUE OF ALP AND INTERNATIONAL TRANSACTION IS MORE THAN 5% OF THE ALP. IT A NO. 1853 /DEL /201 4 COLT TECHNOLOGY SERVICE S INDIA PVT. LTD. 4 13. THE LD. AO / LD. TPO / HON'BLE DRP HAVE ERRED IN TAKING AN INCONSISTENT STAND BY NOT APPLYING THE WAGES / SALES RATIO FILTER TO THE ITES SEGMENT (AS APPLIED IN THE CSD SEGMENT) AND THEREBY ADOPTING AN INCONSISTENT STAND BETWEEN THE ITES AND CSD SEGMENTS AND APPLYING THIS FILTER SELECTIVELY ONLY TO THE CSD SEGMENT. 14. THE LD . AO / LD. TPO / HON'BLE DRP HAVE ERRED IN COMPUTING THE OPERATING MARGINS OF SOME OF THE COMPARABLES. 15. THE LD. TPO HAS ERRED IN COMPUTING THE OPERATING MARGIN OF THE COMPARABLES AFTER WORKING CAPITAL ADJUSTMENTS PURSUANT TO THE DIRECTIONS OF HON'BLE D RP. 16. THE LD. AO / LD. TPO / LD. DRP HAVE ERRED IN MAKING A NOTIONAL ADDITION ON ACCOUNT OF INTEREST ON PERCEIVED DELAY IN COLLECTION OF RECEIVABLES FROM THE ASSOCIATED ENTERPRISES WITHOUT TAKING DUE COGNIZANCE OF THE BUSINESS MODEL AND SUBMISSIONS MADE BY THE APPELLANT. 17. THE LD. AO / LD. TPO / LD. DRP HAS ERRED IN MAKING ADDITIONS ON THE BASIS OF NOTIONAL INTEREST BY COMPARING IT WITH SBIPLR IGNORING THAT THE SAID COMPARISON IS NONE OF THE 5 PRESCRIBED METHODS UNDER THE INDIAN TRANSFER PRICING REGUL ATIONS. 18. THE LD. AO / LD. TPO / LD. DRP HAVE ERRED IN CONSIDERING THE RATE OF INTEREST CHARGEABLE ON RECEIVABLES AT 300 BASIS POINTS ABOV E SBI PLR ON JUNE 30, 2008, I.E. 15.75%. IT A NO. 1853 /DEL /201 4 COLT TECHNOLOGY SERVICE S INDIA PVT. LTD. 5 19. THE HON'BLE DRP HAS ERRED IN STATING THAT THE APPELLANT HAS CONTENDED THAT TURNOVER IS NOT A RELEVANT CRITERION FOR COMPARABILITY IN CASE OF ENTITIES OPERATING ON A COST PLUS BASIS. 20. THE LD. AO / LD. TPO / HON'BLE DRP HAVE ERRED IN IGNORING THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE APPELLANT. 21. THE LD. AO HAS ERR ED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1 )(C) OF THE ACT. 22. THE ABOVE GROUNDS OF APPEALS ARE INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. 23. THE APPELLANT CRAVES LEAVE TO ADD / WITHDRAW / AMEND ANY GROUND OF APPEAL AT THE TIME OF H EARING. 3. DURING THE COURSE OF HEARING THE LD. COUNSEL FOR THE ASSESSEE MOVED AN APPLICATION FOR ADJOURNMENT STATING THEREIN AS UNDER: HONORABLE MEMBERS, THIS IS IN REFERENCE TO THE ABOVE MENTIONED SUBJECT. THE CAPTIONED APPEAL HAS BEEN FIXED FOR HEA RING ON OCTOBER 13, 2016. IN THIS REGARD, WE UNDER THE INSTRUCTIONS OF AND ON BEHALF OF OUR CLIENT, M/S COLT TECHNOLOGY SERVICES INDIA PVT. LTD. ( THE APPELLANT ) WOULD LIKE TO SUBMIT THAT THE APPELLANT HAS INITIATED MAP PROCEEDINGS FOR THE A.Y. 2009 - 10 WH ICH IS CURRENTLY PENDING. THEREFORE, WE REQUEST THE HON BLE MEMBERS TO KINDLY GRANT US AN ADJOURNMENT IN THE CAPTIONED APPEAL. IN THIS REGARD, WE ENCLOSE HEREWITH IT A NO. 1853 /DEL /201 4 COLT TECHNOLOGY SERVICE S INDIA PVT. LTD. 6 A LETTER RECEIVED FROM UK COMPETENT AUTHORITY CONFIRMING THE FILING OF MAP FOR THE A.Y. 2009 - 10. WE REQUEST THE HON BLE MEMBER S TO KINDLY GRANT US AN ADJOURN MENT. INCONVENIENCE CAUSED IS HIGHLY REGRETTED. THANKING YOU AND ASSURING YOU OF OUR FULL CO - OPERATION AT ALL THE TI ME S. YOURS SINCERELY, FOR LUTHRA & LUTHRA LAW OFFICES SD/ - ATUL MITTAL 4. FROM THE CONTENTS OF THE AFORESAID APPLICATION, IT IS CLEAR THAT THE ASSESSEE HAD ALREADY FILED AN APPLICATION FOR MAP PROCEEDINGS. WE DO NOT SEE ANY VALID GROUND FOR GRANTING THE ADJOURNMENT, T HEREFORE, THE SAID APPLICATION IS REJECTED . D URING THE COUR SE OF HEARING , T HE LD. COUNSEL FOR THE ASSESSEE AGAIN STATED THAT AN ADJOURNMENT AT LEAST FOR 6 MONTHS MAY BE GIVEN AS THE MAP PROCEEDINGS ARE PENDING. 5. IN HIS RIVAL SUBMISSIONS THE LD. DR SUBMITTED THAT WHEN THE ASSESSEE HAD ALREADY APPROACHED FOR MAP PROCEEDINGS , THIS APPEAL OF THE ASSESSEE BECOMES INFRUCTUOUS. THEREFORE, IT IS TO BE DISMISSED. IT A NO. 1853 /DEL /201 4 COLT TECHNOLOGY SERVICE S INDIA PVT. LTD. 7 6. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE, IT IS NOTICED THAT THE ASSESSEE HAS FURNISHED A COPY OF THE LETTER FROM HM REVENUE & CUSTOMS I.E. THE DELEGATED COMPETENT AUTHORITY, STATING THEREIN AS UNDER: MUTUAL AGREEMENT PROCEDURE (MAP) UK: INDIA UK/INDIA DOUBLE TAXATION AGREEMENT: ARTICLE 27 UK TAXPAYER: COLT TECHNOLOGY SERVICES GROUP LTD INDIAN TAXPAYER : COLT TECHNOLOGY SERVICES INDIA PRIVATE LTD YEARS ENDED 31 DECEMBER 2005 - 31 DECEMBER 2014 THANK YOU FOR YOUR LETTER OF 22 MAY 2014 IN WHICH YOU HAVE REQUESTED ASSISTANCE UNDER ARTICLE 27 OF THE UK/INDIA DO UBLE TAXATION CONVENTION IN RESPECT OF TRANSFER PRICING ADJUSTMENTS MADE BY THE INDIAN REVENUE SERVICE FOR THE FINANCIAL YEARS 2004/5 - 2009/10. I HAVE ALREADY ACCEPTED THE APPLICATIONS FOR THE THREE YEARS ENDED 31 DECEMBER 2007 AND CAN ACCEPT THE APPLICAT ION FOR THE YEARS ENDED 31 DECEMBER 2008 - 31 DECEMBER 2010 AS IN DATE FOR UK DOMESTIC LAW AND THAT IT HAS BEEN ACCEPTED BY HMRC. I NOTE THE APPLICATION INCLUDES THE FINANCIAL YEARS 2011 TO 2013 WHERE ASSESSMENTS HAVE NOT YET BEEN ISSUED. I SHALL TREAT THE APPLICATION FOR THOSE YEARS AS MADE ON A PROTECTIVE BASIS AS INDIA WILL NOT YET HAVE ASSESSED THOSE YEARS. I SHALL WRITE TO THE INDIAN COMPETENT AUTH ORITY FOR THEIR POSITION PAPER. YOURS SINCERELY , SD/ - MIKE HOGAN DELEGATED COMPETENT AUTHORITY IT A NO. 1853 /DEL /201 4 COLT TECHNOLOGY SERVICE S INDIA PVT. LTD. 8 7 . FROM THE ABOVE LETTER, IT IS CLEAR THAT THE ASSESSEE HAD ALREADY APPROACHED THE COMPETENT AUTHORITY FOR MUTUAL AGREEMENT PROCEDURE (MAP) . THEREFORE, WE DEEM IT APPROPRIATE TO SET ASIDE THIS CASE BACK TO THE FILE OF THE AO TO TAKE THE APPROPRIATE ACTION AFTER T HE OUTCOME OF THE MAP PROCEEDINGS . I N CASE THE APPLICATION OF THE ASSESSEE IS NOT ACCEPTED THAN THE ASSESSEE WILL BE AT LIBERTY TO APPROACH THE ITAT FOR DECIDING THE ISSUES ON MERIT AFTER FILING AN APPLICATION FOR RECALLING THE ORDER AS PER LAW . 8 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . ( ORDER PRON OUNCED IN THE COURT ON 14 /10 /2016) SD/ - SD/ - ( KULDIP SINGH ) (N. K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DAT ED: 14 /10 /2016 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR