Watanmal (India) Pvt. Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1889/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7951 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 02-11-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 22-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S BHARATH
• Assessee Lawyers: T BANUSEKAR
• Keywords: Reopening of assessment; Transfer pricing; International transaction
• Section: 143(3); 133A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , . , BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NO.1889/MDS/2016 ASSESSMENT YEAR : 2007-08 WATANMAL (INDIA) PVT. LTD. UNIT- 4, 7 TH FLOOR, CREST BUILDING, ASCENDAS IT PARK, CSIR ROAD, TARAMANI, CHENNAI - 600 113. [PAN: AAACW 6624B] VS. ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 3(2), CHENNAI. ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI T. BANUSEKAR, CA. / RESPONDENT BY : SHRI S. BHARATH, CIT /DATE OF HEARING : 02.11.2016 /DATE OF PRONOUNCEMENT : 30.11.2016 /O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER: THE ASSESSEE HAS FILED APPEAL AGAINST THE ORDER PA SSED U/S 143(3) R.W.S. 147 R.W.S. 92CA(3) IN PURSUANCE OF THE DIREC TIONS OF THE DRP ORDER NO. F.NO. 476/DRP-2/BLR/2015-16, DATED 07.04.2016 U/S 1 44C(5) OF THE INCOME TAX ACT. AT THE TIME OF HEARING LD. AR HAS NOT PRESSED THE GROUND NOS. 3,4,5,6,7 AND :-2-: I.T.A. NO. 1889/MDS/2016 THE SAME ARE TREATED AS DISMISSED AND ASSESSEE HAS RAISED ONLY GROUND NO. 8 'FOR THAT TWO OF THE COMPARABLE COMPANIES CHOSEN BY THE ASSESSING OFFICER ARE NOT COMPATIBLE WITH THE PROFILE OF THE APPELLANT CO MPANY AND ARE FUNCTIONALLY DIFFERENT.' AT THE TIME OF HEARING THE LD. AR HAS NOT PRESSED THE COMPARABLE M/S. ADITHYA BIRLA MINACS WORLDWIDE LTD., IN GROUND NO.8 AND ONLY COMPARABLE M/S. ALLSEC TECH LTD., CHOSEN BY THE TPO IS NOT COM PATIBLE WITH THE WORKING OF ASSESSEE COMPANY AND PRAYED FOR EXCLUDING THE SAID COMPARABLE. 2. THE BRIEF FACTS OF THE CASE THAT THE ASSESSEE C OMPANY IS ENGAGED IN BUSINESS PROCESS OF PROVIDING SUPPORT SERVICES TO I TS AE (WATANMAL BOOLCHAND & CO LIMITED HONGKKONG) ENGAGED IN TRADING OF FMCG/FO OD PRODUCTS, SUNDRIES ETC. AND FORM PART OF THE WATANMAL GROUP OPERATING IN V ARIOUS COUNTRIES AND FILED THE RETURN OF INCOME ON 22.10.2007 WITH TOTAL INCOM E OF RS. 37,02,530/- AND THE RETURN WAS PROCESSED U/S. 143(1) OF THE ACT. SUBSE QUENTLY, THERE WAS SURVEY OPERATIONS U/S 133A OF THE ACT ON THE BUSINESS PREM ISES OF THE ASSESSEE AND THE INCOME TAX DEPARTMENT FOUND THAT THE ASSESSEE HAS I NTERNATIONAL TRANSACTIONS AND WAS NOT BEING REMUNERATED AT ARM'S LENGTH PRICE BY THE AE IN RESPECT OF SERVICES OF THE ASSESSEE COMPANY. FURTHER, THE ASS ESSING OFFICER RECORDED REASONS FOR REOPENING OF ASSESSMENT AND ISSUED NOTI CE U/S.148 OF THE ACT. IN COMPLIANCE TO THE NOTICE, THE ASSESSEE FILED THE LE TTER DATED 15.04.2014 REQUESTING TO TREAT RETURN OF INCOME FILED ON 22.1 0.2007 AS RETURN IN COMPLIANCE TO NOTICE U/S.148 AND THE REASONS FOR REOPENING OF ASSESSMENT WAS PROVIDED TO THE ASSESSEE AND LD. AR APPEARED FROM TIME TO TIME AND SUBMITTED THE :-3-: I.T.A. NO. 1889/MDS/2016 INFORMATION. THE LD. AO MADE REFERENCE U/S. 92CA OF THE ACT TO THE TPO AND THE ASSESSEE FILED REPORT FORM 3CEB ON INTERNATIONAL T RANSACTIONS. THE LD. TPO PASSED ORDER U/S. 92CA(3) OF THE ACT ON 19.05.2015 BY DETERMINING THE ARM'S LENGTH PRICE OF SUPPORT SERVICES OF THE ASSESSEE CO MPANY TO ITS AE AND MADE A UPWARD ADJUSTMENT OF RS. 36 LAKHS TO WARDS THE MANA GEMENT FEE AND THE LD. AO HAS PASSED THE DRAFT ASSESSMENT ON 13.08.2015. AGA INST THE DRAFT ASSESSMENT ORDER THE ASSESSEE HAS FILED OBJECTIONS IN FORM 35A BEFORE THE DISPUTE RESOLUTION PANEL (DRP). SUBSEQUENTLY, DRP REJECTED THE OBJECTIONS AND CONFIRMED THE DISALLOWANCE OF LD. AO AS IN DRAFT AS SESSMENT ORDER. FINALLY, THE LD. AO PASSED ASSESSMENT ORDER U/S. 143(3) R.W.S. 1 47 R.W.S 92CA (3) R.W.S 144C(5) OF THE ACT ON 05.05.2016 DETERMINING THE AS SESSED INCOME OF RS. 73,02,530/-AGAINST WHICH THE ASSESSEE HAS FILED APP EAL BEFORE THE TRIBUNAL. 3. BEFORE US, THE LD. AR ARGUED ON SELECTION OF COM PARABLES. THE LD. TPO BASED ON THE INTERNATIONAL TRANSACTIONS COMPUTE D ARM'S LENGTH PRICES (ALP) WITH UPWARD ADJUSTMENT OF RS. 36 LAKHS AND DEALT ON THE WORKING SYSTEM WERE THE ASSESSEE COMPANY IS ENGAGED IN PROVIDING SUPPOR T SERVICES TO ITS AE IN HONGKONG. WHILE DETERMINING ALP, THE LD. TPO REJEC TED SIX COMPARABLES SELECTED BY THE ASSESSEE AND SELECTED THREE COMPARA BLES COMPANIES AND CALCULATED ARITHMETIC MEAN AT 27.58%. THE ASSESSEE HAS FILED SUBMISSIONS ON THE COMPARABLES AND THE LD. TPO CONSIDERED THE SUBM ISSIONS AND EXCLUDED COMPARABLE COMPANY M/S. APEX ADVANCED TECH (P) LTD. , BEING A OUTSOURCING COMPANY AND IS IN ITES (INFORMATION TECHNOLOGY ENAB LING SERVICES) PROVIDED BY :-4-: I.T.A. NO. 1889/MDS/2016 US COMPANY AND ALSO IN THE SERVICES OF DOCUMENTATIO N, CONVERSION AND PROCESS OUTSOURCE. 4. WHERE AS, THE ASSESSEE COMPANY IS IN LOGISTIC AN D BUSINESS SUPPORT SERVICES AND THE LD. TPO ACCEPTED THE ASSESSEE COM PANY'S COMPARABLE M/S. CYBER MEDIA RESEARCH LTD AND CALCULATED PROFIT LEV EL INDICATOR (PLI) AT 19.33% AND COMPUTED THE ALP ON SERVICES TO THE AE WITH UPW ARD ADJUSTMENT. FURTHER, THE DRP OBSERVED THAT THE LD. TPO ACCEPTED THE TNM METHOD AS MOST APPROPRIATE METHOD FOR ALP AND CONFIRMED THE COMPAR ABLES SELECTED BY THE LD. TPO AND REJECTED THE OBJECTIONS OF THE ASSESSEE. 5. THE LD. AR ARGUED THAT THE ASSESSEE COMPANY WANT S TO EXCLUDE THE COMPARABLE SELECTED M/S. ALLSEC TECH LTD. THE LD. AR EMPHASISED THAT THE ASSESSEE COMPANY IS IN SUPPORT SERVICES TO ITS AE A T HONGKONG AND CHOSEN TNM METHOD AS THE MOST APPROPRIATE METHOD FOR DETERMINI NG ALP. THE LD. TPO DETERMINED PLI AT 9.12% AS AGAINST AT 10.29% OF THE ASSESSEE COMPANY, FURTHER PLI OF COMPARABLES SELECTED BY THE ASSESSEE COMPANY WORKED OUT AT 15.44% WERE AS THE LD. TPO SELECTED THREE COMPARABLES M/S. CYBER MEDIA RESEARCH LIMITED, M/S. ALLSEC TECH LTD., AND M/S. ADITHYA BI RLA MINACS WORLDWIDE LTD., AND CALCULATED AVERAGE PLI AT 19.33% AND MADE UPWARD AD JUSTMENT OF RS. 36 LAKHS. THE LD. AR VEHEMENTLY CONTESTED TO EXCLUDE COMPARAB LE M/S. ALLSEC TECH LTD. WHICH WAS FORMED IN THE YEAR 1998 WITH EXPERTISE IN PROVIDING BUSINESS PROCESS SOLUTION IN VARIOUS INDUSTRIES AND ALSO RENDER THE SERVICES OF HR OUTSOURCING. :-5-: I.T.A. NO. 1889/MDS/2016 WHEREAS, THE ASSESSEE COMPANY IS RENDERING LOGISTIC SERVICES, SOURCING SERVICES AND SALES SERVICES AND ACCOUNTING SERVICES TO ITS A E AT HONGKONG AND THESE SERVICES ARE NOT RENDERED BY THE M/S. ALLSEC TECH L TD. AND PRAYED FOR EXCLUDING THE SAID COMPARABLE AND SUBMITTED PROFILE OF THE CO MPARABLE COMPANY. 6. CONTRA, THE LD. DR OBJECTED TO THE EXCLUSION OF COMPARABLE AND RELIED ON THE DRP ORDER. 7. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AND FOUND THAT THE COMPARABLE COMPANY M/S. ALLSEC T ECH LTD., IS IN HR OUTSOURCING, MORTGAGE PROCESSING, VOICE INTELLIGENC E AND FINANCIAL PROCESSING SERVICES AND ANTI MONEY LAUNDERING SERVICES. 8. WHEREAS, THE ASSESSEE COMPANY DOES NOT RENDER A NY OF THE SERVICES RENDERED BY M/S. ALLSEC TECH LTD. WHICH ALSO PROVID ES SERVICE IN THE AREA OF ANTI- MONEY LAUNDERING TO THE FINANCIAL INSTITUTIONS TO P ROACTIVELY DETECT FRAUD AND CUSTOMER AUTHENTICITY. THE ASSESSEE COMPANY PROFIL E AND FUNCTIONS ARE DIFFERENT FROM M/S. ALLSEC TECH LTD., WE CONSIDERING THE FACT S AND MATERIAL ON RECORD ARE INCLINED TO ACCEPT THE CONTENTIONS OF THE LD. AR ON COMPARABLE ALLSEC TECH LTD., AS THE FUNCTIONS OF THE COMPANY DIFFER FROM THE ASS ESSEE COMPANY ON SERVICES. HENCE, THE ALLSEC TECH LTD. COMPANY CANNOT BE CONSI DERED AS A COMPARABLE FOR DETERMINING THE ALP, AND WE DIRECT THE TPO TO EXCLU DE THREE COMPARABLE COMPANY AND ALLOW THE GROUND OF THE ASSESSEE. :-6-: I.T.A. NO. 1889/MDS/2016 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON WEDNESDAY, THE 30TH DAY OF NOVE MBER, 2016 AT CHENNAI. SD/- ( ) (PRAMOD KUMAR) / ACCOUNTANT MEMBER SD/- ( (( ( . ) )) ) (G. PAVAN KUMAR) /JUDICIAL MEMBER /CHENNAI, /DATED: 30TH NOVEMBER, 2016 JPV /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( )/CIT(A) 4. / CIT 5. / DR 6. / GF