Swiss Re Global Business Solutions India Pvt Ltd , Bangalore V. Deputy Commissioner of Income TAx Circle-6(1)(2), Bangalore

ITA 2028/BANG/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5516 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 20-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: FARHAT HUSSAIN QURESHI
• Keywords: Business income; Depreciation; Transfer pricing; International transaction
• Section: 143(3); 234B; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER IT (TP) A NO. 2028/BANG/2017 ASSESSMENT YEAR : 2013 - 14 SWISS RE GLOBAL BUSINESS SOLUTIONS INDIA PRIVATE LTD., [FORMERLY KNOWN AS SWISS RE SHARED SERVICES (INDIA) PVT. LTD.], VASWANI CENTROPOLIS, 2 ND TO 6 TH FLOOR, LANGFORD TOWN, BENGALURU 560 027. PAN: AAECS 8786L VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 6(1)(2), BANGALORE. APP ELLANT RESPONDENT A PPELLANT BY : SHRI NAGESHWAR RAO, ADVOCATE RE SPONDENT BY : SHRI FARHAT HUSSAIN QURESHI, ADVOCATE DATE OF HEARING : 31.01 .201 8 DATE OF PRONOUNCEMENT : 28 . 0 2 .201 8 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE AO PASSED CONSEQUENT TO THE DIRECTIONS OF THE DRP INTER ALIA ON VARIOUS GROUNDS WHICH ARE AS UNDER:- BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, SWISS RE GLOBAL BUSINESS SOLUTIONS INDIA PRIVATE LI MITED (HEREINAFTER REFERRED TO AS 'APPELLANT'), RESPECTFU LLY CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE APPEAL ORDER PASSED BY THE LEARNED ASSESSING OFFICER [HEREINAFTER REFERRED TO AS THE ' LEARNED AO'] IT(TP)A NO.2028/BANG/2017 PAGE 2 OF 7 UNDER SECTION 143(3) READ WITH SECTION 144C(13) OF THE INCOME- TAX ACT, 1961 ('THE ACT') ON THE FOLLOWING GROUNDS: THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW: 1. THE LEARNED AO, BASED ON DIRECTIONS OF THE HON'B LE DRP, ERRED IN ASSESSING THE TOTAL INCOME AT INR 22,45,74 ,154 AS AGAINST RETURNED INCOME OF INR 16,53,88,150 COMPUTED BY THE APPELLANT; 2. THE LEARNED AO/ TRANSFER PRICING OFFICER ('TPO') ERRED IN MAKING AN ADDITION OF INR 5,91,86,004 TO THE TOTAL INCOME OF THE APPELLANT ON ACCOUNT OF ADJUSTMENT IN THE ARM'S LEN GTH PRICE FOR PROVISION OF INFORMATION TECHNOLOGY ENABLED SERVICE S ('ITES') TRANSACTION ENTERED BY THE APPELLANT WITH ITS ASSOC IATED ENTERPRISE; 3. THE LEARNED AO/ TPO ERRED, IN LAW AND IN FACTS, BY NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE A PPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE RULES, AND CONDUCTING A FRESH ECONOMIC ANALYSIS FOR THE DE TERMINATION OF THE ALP IN CONNECTION WITH THE IMPUGNED INTERNAT IONAL TRANSACTION AND HOLDING THAT THE APPELLANT'S INTERN ATIONAL TRANSACTION IS NOT AT ARM'S LENGTH; 4. THE LEARNED AO/ TPO ERRED, IN LAW AND IN FACTS, BY DETERMINING THE ARM'S LENGTH MARGIN/ PRICE USING ON LY FY 2012- 13 DATA WHICH WAS NOT AVAILABLE TO THE APPELLANT AT THE TIME OF COMPLYING WITH THE TRANSFER PRICING DOCUMENTATION R EQUIREMENTS; 5 THE LEARNED AO/TPO ERRED IN REJECTING CERTAIN CO MPARABLE COMPANIES BY APPLYING THE FOLLOWING QUANTITATIVE AN D QUALITATIVE FILTERS: A) THE LEARNED AOI TPO ERRED, IN LAW AND IN FACTS, BY REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIED BY THE APPE LLANT FOR HAVING DIFFERENT ACCOUNTING YEAR (I.E. COMPANIES HA VING ACCOUNTING YEAR OTHER THAN MARCH 31 OR COMPANIES WH OSE FINANCIAL STATEMENTS WERE FOR A PERIOD OTHER THAN 1 2 MONTHS); B) THE LEARNED AO/ TPO ERRED, IN LAW AND IN FACTS, BY REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIED BY THE APPE LLANT IT(TP)A NO.2028/BANG/2017 PAGE 3 OF 7 USING EMPLOYEE COST GREATER THAN 25 OF THE TOTAL RE VENUES AS A COMPARABILITY CRITERION; C) THE LEARNED AO/ TPO ERRED, IN LAW AND IN FACTS, BY USING EXPORT SALES LESS THAN 75 OF TOTAL SALES AS A COMPA RABILITY CRITERION; D) THE LEARNED AO/ TPO ERRED, IN LAW AND IN FACTS, BY APPLYING ONLY THE LOWER TURNOVER FILTER OF LESS THAN INR 1 CRORE AS A COMPARABILITY CRITERION AND NOT APPLYING A HIGHER T HRESHOLD LIMIT FOR TURNOVER FILTER; 6. THE LEARNED AO/ TPO ERRED, IN LAW AND IN FACTS, BY EXERCISING HIS POWERS UNDER SECTION 133(6) OF THE A CT TO OBTAIN INFORMATION WHICH WAS NOT AVAILABLE IN PUBLIC DOMAI N AND RELYING ON THE SAME FOR COMPARABILITY PURPOSES; 7. THE LEARNED AO/TPO ERRED, IN LAW AND IN FACTS, B Y ACCEPTING/ REJECTING COMPANIES BASED ON UNREASONABL E COMPARABILITY CRITERIA: A) THE LEARNED AO/TPO ERRED, BY ACCEPTING CERTAIN A DDITIONAL COMPARABLE COMPANIES BY CONDUCTING A FRESH INDEPEND ENT SEARCH DURING TP ASSESSMENT PROCEEDINGS WHICH ARE FUNCTIONALLY DISSIMILAR; B) THE LEARNED AO/TPO ERRED, BY REJECTING CERTAIN COMPARABLE COMPANIES SELECTED BY THE APPELLANT IN I TS TP DOCUMENTATION; C) THE LEARNED AO/TPO ERRED, BY REJECTING CERTAIN COMPARABLE COMPANIES ADDITIONALLY PROPOSED BY THE APPELLANT DURING TP ASSESSMENT PROCEEDINGS WHICH AR E FUNCTIONALLY SIMILAR; ALTHOUGH SOME OF THE COMPANIES WERE CHOSEN AS COMPA RABLES IN THE TRANSFER PRICING STUDY, UPON CONSIDERATION OF M ORE DETAILS, SOME OF THESE COM PARABLES IN CASE FOUND TO BE NOT COMPARABLE FOR DIFFERENT REASONS, APPELLANT CRAVES LEAVE TO UR GE THE SAME AT THE TIME OF HEARING. IT(TP)A NO.2028/BANG/2017 PAGE 4 OF 7 8. THE LEARNED AO/ TPO ERRED, IN LAW AND IN FACTS, BY WRONGLY COMPUTING THE OPERATING MARGINS OF SOME OF THE COMPARABLE COMPANIES CONSIDERED IN THE TP ORDER; 9. THE LEARNED AO/ TPO ERRED, IN LAW AND IN FACTS, BY INCORRECTLY COMPUTING THE WORKING CAPITAL ADJUSTMEN T BENEFIT; 10. THE LEARNED AO/ TPO ERRED, IN LAW AND IN FACTS, BY NOT GRANTING DEPRECIATION ADJUSTMENTS TO ACCOUNT FOR DI FFERENCES IN THE RATE OF DEPRECIATION CHARGED BY THE APPELLANT V IS-A-VIS THE COMPARABLES; 11. THE LEARNED AO/ TPO ERRED, IN LAW AND IN FACTS, BY NOT MAKING SUITABLE ADJUSTMENTS ON ACCOUNT OF DIFFERENC ES IN THE RISK PROFILE OF THE APPELLANT VIS-A-VIS THE COMPARABLES, WHILE CONDUCTING COMPARABILITY ANALYSIS; 12. THE LEARNED AO HAS ERRED, IN LAW AND IN FACTS, BY LEVYING INTEREST OF INR 1,12,11,146 UNDER SECTION 234B OF T HE INCOME TAX ACT, 1961; 13. THE LEARNED AO HAS ERRED, IN LAW AND IN FACTS, IN INITIATING PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. THE APPELLANT SUBMITS THAT EACH OF THE ABOVE GROUND S IS INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, VA RY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL A T ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE HON'BLE TRIBUNAL TO DECIDE ON THE APPEAL IN ACCORDA NCE WITH THE LAW. 2. DURING THE COURSE OF HEARING, THE LD. COUNSEL FO R THE ASSESSEE HAS FILED AN APPLICATION FOR ADMISSION OF ADDITIONAL GR OUNDS. THE ADDITIONAL GROUNDS RAISED THROUGH THIS APPLICATION ARE ALSO EX TRACTED HEREUNDER:- THE APPELLANT CRAVES LEAVE TO RAISE THE FOLLOWING ADDITIONAL GROUNDS. THE HON'BLE TRIBUNAL WOULD APPRECIATE THAT THESE IT(TP)A NO.2028/BANG/2017 PAGE 5 OF 7 GROUNDS ARE TO BE READ IN CONJUNCTION WITH GROUNDS ALREADY TAKEN UP BY THE APPELLANT. A. THAT THE FOLLOWING COMPANIES CANNOT BE CONSIDERE D AS COMPARABLE TO APPELLANT IN LAW AND FACT ON ONE OR M ORE GROUNDS: 1. ACROPETAL TECHNOLOGIES LIMITED (SEGMENTAL) 2. HARTRON COMMUNICATION LIMITED 3. CAPGEMINI BUSINESS SERVICES (INDIA) PRIVATE LIM ITED 4. TECH MAHINDRA LIMITED (CONSOLIDATED SEGMENTAL) 5. INFOSYS BPO LIMITED B. THE LEARNED AO/ TPO ERRED, BY REJECTING THE FOLL OWING COMPARABLE COMPANIES SELECTED BY THE APPELLANT IN I TS TP DOCUMENTATION EVEN THOUGH THE COMPANIES ARE FUNCTIO NALLY COMPARABLE TO THE APPELLANT: 1. CALIBER POINT BUSINESS SOLUTIONS LIMITED (SEGMEN TAL) 2. INFORMED TECHNOLOGIES INDIA LIMITED C. THE LEARNED AO/ TPO ERRED, BY REJECTING THE FOLL OWING COMPARABLE COMPANIES ADDITIONALLY PROPOSED TO BE IN CLUDED BY THE APPELLANT EVEN THOUGH THE COMPANIES ARE FUNCTIO NALLY COMPARABLE TO THE APPELLANT: 1. ACE BPO SERVICES PRIVATE LIMITED 2. R SYSTEMS INTERNATIONAL LIMITED (SEGMENTAL) THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, VA RY, OMIT, OR SUBSTITUTE ANY OF THE AFORESAID, AT ANY TIME BEFORE OR AT THE TIME OF, HEARING OF THE APPEAL, SO AS TO ENABLE THE HON' BLE TRIBUNAL TO DECIDE ON APPEAL IN ACCORDANCE WITH THE LAW. 3. DURING THE COURSE OF HEARING, THE LD. COUNSEL FO R THE ASSESSEE HAS INVITED OUR ATTENTION TO THE ORDER OF THE TPO THAT WHILE SELECTING THE COMPARABLES, THE TPO HAS APPLIED VARIOUS FILTERS FO R EXCLUDING THE COMPARABLES TAKEN IN THE TP STUDY BY THE ASSESSEE, BUT HE HAS NOT APPLIED THESE FILTERS UNIFORMLY TO ALL THE COMPARABLES EITH ER TAKEN BY THE ASSESSEE OR SELECTED BY HIMSELF. FOR EXAMPLE, HE HAS EXCLU DED CERTAIN COMPARABLES WHOSE ITES INCOME IS LESS THAN 75% OF I TS TOTAL OPERATING REVENUE WITHOUT REALIZING THAT SEGMENTAL INFORMATIO N ARE AVAILABLE IN THE IT(TP)A NO.2028/BANG/2017 PAGE 6 OF 7 ANNUAL REPORT. THE ASSESSEE HAS TAKEN 5 COMPARABLE S VIZ., (1) CALIBER POINT BUSINESS SOLUTIONS LTD. (2) COSMIC GLOBAL LTD . (3) E4E HEALTHCARE BUSINESS SERVICES P. LTD. (4) INFORMED TECHNOLOGIES INDIA LTD. (5) JINDAL INTELLICOM LTD. THE TPO HAS EXCLUDED (1) CALIBER P OINT BUSINESS SOLUTIONS LTD. (2) COSMIC GLOBAL LTD. AND (3) INFORMED TECHNO LOGIES INDIA LTD. BY APPLYING DIFFERENT FILTERS. THE TPO HAS SELECTED O F HIS OWN 9 MORE COMPARABLES AND HAS TAKEN 11 COMPARABLES FOR DETERM INING THE ARITHMETIC MEAN TO COMPUTE THE ALP OF THE INTERNATIONAL TRANSA CTIONS. IN THE COURSE OF THE HEARING, THE LD. COUNSEL FOR THE ASSESSEE HA S ALSO INVITED OUR ATTENTION TO THE ORDER OF THE TPO WITH THE SUBMISSI ON THAT WHATEVER FILTER WAS APPLIED BY THE TPO FOR EXCLUDING THE COMPARABLE S TAKEN BY THE ASSESSEE IN THE TP STUDY, THE SAME FILTER SHOULD BE APPLIED TO THE COMPARABLES TAKEN UP BY THE TPO HIMSELF. THERE CAN NOT BE AN APPLICATION OF DIFFERENT FILTERS FOR DIFFERENT COMPARABLES. TH IS PROPOSITION WAS CONFRONTED TO THE LD. DR AND THESE FACTS WERE NOT R EBUTTED. 4. DURING THE COURSE OF HEARING, BOTH THE PARTIES A GREED THAT WHATEVER FILTER THE TPO WANTS TO APPLY, IT SHOULD BE APPLIED UNIFORMLY TO ALL THE COMPARABLES EITHER TAKEN BY THE ASSESSEE OR SELECTE D BY THE TPO FOR COMPUTING THE ALP. FROM A READING OF THE ORDER OF T HE TPO, IT ALSO APPEARS THAT THE FILTERS WERE NOT UNIFORMLY APPLIED TO ALL THE COMPARABLES. UNDER THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT LET TH E MATTER BE REMANDED TO THE TPO TO RE-EXAMINE THE COMPARABLES TAKEN BY THE ASSESSEE IN THE TP STUDY AND ALSO THE COMPARABLES SELECTED BY THE TPO BY APPLYING THE SAME FILTERS UNIFORMLY. ACCORDINGLY, WE SET ASIDE THE O RDER OF THE AO AND RESTORE THE MATTER TO THE AO/TPO TO RE-EXAMINE THE COMPARAB LES TAKEN BY THE ASSESSEE IN THE TP STUDY AND THE COMPARABLES ORIGIN ALLY SELECTED BY THE TPO WHILE DETERMINING THE ALP AND WHATEVER FILTER T HE TPO WANTS TO APPLY, IT SHOULD BE APPLIED TO ALL COMPARABLES UNIFORMLY W HILE DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTIONS. IT(TP)A NO.2028/BANG/2017 PAGE 7 OF 7 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF FEBRUARY, 2018. SD/- SD/- ( INTURI RAMA RAO ) ( SUNIL KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 28 TH FEBRUARY, 2018. / D ESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.