M/s Inuit India Software Solutions Pvt Ltd , Bangalore V. Deputy Commissioner of Income TAx Circle-11(3), Bangalore

ITA 2090/BANG/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4154 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 31-10-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SREE NANDINI DAS BENGALUR U
• Keywords: Transfer pricing
• Section: 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO. 2090/BANG/2017 ASSESSMENT YEAR : 2010 - 11 M/S. INTUIT INDIA SOFTWARE SOLUTIONS P. LTD., 6 TH FLOOR, CAMPUS 4A, PRITECH PARK (ECOSPACE), BELLANDUR VILLAGE, VARTHUR HOBLI, BANGALORE EAST TALUK, BANGALORE 560 103. PAN : AABCI 9865R VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(3), BANGALORE. APP EL LANT RESPONDENT APP ELLANT BY : SHRI SHA RATH RAO, CA RESPONDENT BY : SMT. SREE NANDINI DAS, ADDL.CIT(DR)(ITAT), BENGALUR U. DATE OF HEARING : 1 0 .10.2018 DATE OF PRONOUNCEMENT : 31 . 10.2018 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 30.08.2017 OF THE CIT(APPEALS)-3, BANGALORE RELATING TO ASSESS MENT YEAR 2010-11. 2. THE ONLY ISSUE THAT WAS PRESSED FOR ADJUDICATIO N IN THIS APPEAL BY THE ASSESSEE IS WITH REGARD TO THE INCLUSION OF TWO COMPARABLE COMPANIES VIZ., ASIAN BUSINESS EXHIBITION & CONFERENCE LTD. A ND CYBER MEDIA RESEARCH LTD. FOR THE PURPOSE OF COMPARING THEIR PR OFIT MARGIN WITH THAT OF ITA NO.2090/BANG/2017 PAGE 2 OF 7 THE ASSESSEE IN THE MATTER OF DETERMINATION OF ARM S LENGTH PRICE (ALP) U/S. 92 OF THE I.T. ACT, 1961 (THE ACT). 3. THE ASSESSEE IS A SUBSIDIARY OF INTUIT SINGAPORE PTE LTD. THE ASSESSEE PROVIDED MARKETING SUPPORT SERVICES FOR TH E PRODUCT VIZ., BUSINESS AND FINANCIAL MANAGEMENT SOLUTIONS FOR SMA LL AND MEDIUM SIZE BUSINESS, ETC. FOR PROVIDING SUCH MARKETING SUPPOR T SERVICES, THE ASSESSEE RECEIVED THE COST PLUS MARGIN OF 15% AS CO MPENSATION. THE SUM RECEIVED BY THE ASSESSEE DURING THE PREVIOUS YE AR TOWARDS PROVISION OF MARKETING SUPPORT SERVICES WAS A SUM OF RS.1,21, 44,023. 4. SINCE THE TRANSACTION BETWEEN THE ASSESSEE AND I NTUIT SINGAPORE PTE LTD. WAS A TRANSACTION BETWEEN RELATED PARTIES [I.E. ASSOCIATED ENTERPRISE (AE)], IT WAS AN INTERNATIONAL TRANSACTI ON WITHIN THE MEANING OF SECTION 92 OF THE ACT AND THE ARMS LENGTH PRICE (A LP) OF THE RECEIPT OF CONSIDERATION FROM THE AES HAD TO PASS THE ARMS LE NGTH TEST. THE QUESTION OF DETERMINATION OF ALP WAS REFERRED BY THE AO TO T HE TPO. IT IS NOT IN DISPUTE BETWEEN THE ASSESSEE AND THE DEPARTMENT THA T TNMM WAS THE MOST APPROPRIATE METHOD FOR DETERMINATION OF ALP. THE TPO CHOSE 5 COMPARABLE COMPANIES AND DETERMINED THE ALP AND THE ADDITION TO BE MADE TO THE TOTAL INCOME OF THE ASSESSEE ON DETERMI NATION OF ALP AS FOLLOWS:- 9.5 THEREFORE, IN VIEW OF THE DISCUSSION MADE ABO VE AND THE OBJECTIONS RECEIVED WITH REGARD TO THE COMPARABLES SELECTED BY THE TPO, THE FOLLOWING 5 UNCONTROLLED COMPARABLES O UT OF THE 7 PROPOSED IN SHOW CAUSE NOTICE, ARE FINALLY RETAINED FOR COMPARABILITY ANALYSIS UNDER TNMM BEING FUNCTIONALL Y SIMILAR TO THE TAXPAYER. ITA NO.2090/BANG/2017 PAGE 3 OF 7 SI. NO. NAME OF THE COMPANY OP/COST(%) 1 ASIAN BUSINESS EXHIBITION & C ONFERENCES LTD. 58.64 2 CYBER MEDIA RESEARCH LTD. 19.52 3 H C C A BUSINESS SERVICES PVT. LTD. 19.11 4 IC C INTERNATIONAL AGENCIES LTD. 13.27 5 KILLICK AGENCIES & MKTG. LTD. 16.77 AVERAGE 25.46% COMPUTATION SHEET OF PLI OF THE COMPARABLES IS ENCL OSED. 10. TPO'S CONCLUSIONS: 10.1 IN VIEW OF THE DISCUSSIONS MADE ABOVE, THE TPO PROC EEDS TO MAKE NECESSARY TRANSFER PRICING ADJUSTMENTS IN THE CASE OF THE TAXPAYER UNDER TNMM USING THE SET OF 5 UNCONTROLLED COMPARABLES AS ABOVE WITH AVERAGE PLI (OP/COST%) OF 25.46%. 10.1 DETERMINATION OF ARM'S LENGTH PRICE: THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSAC TION OF THE TAXPAYER RELATING TO MARKET SUPPORT SERVICES IS THEREFORE DE TERMINED AS UNDER USING THE SET OF 6 UNCONTROLLED COMPARABLES SELECTED BY THE TPO, WITH AVERAGE PLI (OP/COST) OF 25.46%. THE TAXPAYER'S PLI (OP/COST) IN THE SEGMENT IS 16.07% AS PER PARA 3 ABOVE. PARTICULARS AMOUNT (RS.) OPERATING COST 12,92,91,035/ - ARM'S LENGTH MEAN MARGIN 25.46% ARM'S LENGTH PRICE (125.46% OF OPERATING COST) 16,2 2,08,532/ - PRICE RECEIVED 15,00,64,509/ - SHORTFALL BEING ADJUSTMENT U/S 92CA 1,21,44,023/- 10.2 THEREFORE THE TRANSFER PRICING ADJUSTMENT MADE IN THE CASE OF THE TAXPAYER U/S 92CA OF THE INCOME-TAX ACT, 61 IS OF R S. 1,21,44,023/- (RUPEES ONE CRORE, TWENTY ONE LAKHS, FORTY FOUR THOUSAND, A ND TWENTY THREE- ONLY) AS DISCUSSED ABOVE, IN RESPECT OF THE MARKET SUPPORT S ERVICES SEGMENT. 5. THE AO PASSED FINAL ORDER OF ASSESSMENT IN WHICH THE ADJUSTMENT TO ALP SUGGESTED BY THE TPO WAS ADDED TO THE TOTAL INC OME OF THE ASSESSEE. 6. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFE RRED APPEAL BEFORE THE CIT(APPEALS), WHO MATERIALLY CONFIRMED THE ORDE R OF THE AO. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL B EFORE THE TRIBUNAL. ITA NO.2090/BANG/2017 PAGE 4 OF 7 7. AS ALREADY STATED, THE ASSESSEE SEEKS TO EXCLUDE TWO COMPARABLE COMPANIES OUT OF 5 COMPARABLES WHOSE PROFIT MARGIN WAS SELECTED FOR THE PURPOSE OF COMPARISON BY THE TPO WITH THE ASSESSEE S PROFIT MARGIN. 8. WE HAVE HEARD THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE AND THE LD. DR ON THE EXCLUSION OF TWO OUT OF FIVE COMPARABLE COMPANIES. AS FAR AS ASIAN BUSINESS EXHIBITION & CONFERENCE LT D. IS CONCERNED, THIS TRIBUNAL IN THE CASE OF ITO V. ALCON LABORATORIES P. LTD. [2017] 88 TAXMANN.COM 240 (BANG. TRIB.) A COMPANY RENDERING S ERVICES SIMILAR TO THAT OF THE ASSESSEE, CONSIDERED THE COMPARABILITY OF THIS COMPANY AND CAME TO THE FOLLOWING CONCLUSION:- 4. IT WAS SUBMITTED BY THE LEARNED AR OF THE ASSE SSEE THAT IN THE C.O. FILED BY THE ASSESSEE, THE ONLY GRIEVANCE OF THE ASSESSEE IS REGARDING ONE COMPARABLE I.E. ASIAN BUSINESS EXH IBITION & CONFERENCES LTD. AS PER THE ASSESSEE, THIS IS NOT A GOOD COMPARABLE AND IT SHOULD BE EXCLUDED. IN SUPPORT OF THIS CONTENTION, HE PLACED RELIANCE ON A TRIBUNAL ORDER RENDERED IN THE CASE OF DCIT VS. ELECTRONICS FOR IM AGING INDIA PVT. LTD. IN IT (TP) A NO. 212/BANG/2015 DATED 24.0 2.2016 FOR THE SAME ASSESSMENT YEAR, COPY AVAILABLE ON PAGES 3 49 TO 381 OF THE PAPER BOOK. IN PARTICULAR, OUR ATTENTION WAS DR AWN TO PARA 52 TO 55 OF THIS TRIBUNAL ORDER ON PAGE 372 TO 375 OF THE PAPER BOOK. IT WAS ALSO POINTED OUT THAT THE TRIBUNAL HAS FOLLO WED ANOTHER TRIBUNAL ORDER OF MUMBAI BENCH RENDERED IN THE CASE OF RGA SERVICES INDIA PVT. LTD. VIDE ORDER DATED 20.11.201 5 IN ITA NO. 22/MUM/2015. THE BENCH WANTED TO THE ASSESSMENT YEA R INVOLVED IN THIS ORDER OF THE MUMBAI BENCH OF THE T RIBUNAL. IN REPLY, HE SUBMITTED THAT A COPY OF THIS TRIBUNAL OR DER IS AVAILABLE ON PAGES 483 TO 490 OF THE PAPER BOOK AND FROM THE SAME, IT CAN BE SEEN THAT THE ASSESSMENT YEAR INVOLVED IN THAT O RDER IS SAME I.E. 2010 11. LEARNED DR OF THE REVENUE SUPPORTED THE ORDERS OF TPO, AO & DRP. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE ITA NO.2090/BANG/2017 PAGE 5 OF 7 BY THESE TWO TRIBUNAL ORDERS CITED BY THE LEARNED A R OF THE ASSESSEE FOR SAME ASSESSMENT YEAR. WE FIND THAT IN PARA 8 OF THE TRIBUNAL ORDER RENDERED IN THE CASE OF DCIT VS. ELE CTRONICS FOR IMAGING INDIA PVT. LTD. (SUPRA), THE PROFILE OF THA T ASSESSEE WAS NOTED AND AS PER THE SAME, THAT ASSESSEE WAS ENGAGE D IN SOFTWARE DEVELOPMENT SERVICES AND SALES & MARKETING SUPPORT SERVICES. BOTH WERE BENCHMARKED SEPARATELY AND THE PARAS OF T HE TRIBUNAL ORDER REFERRED TO BEFORE US ARE IN RESPECT OF MARKE TING SUPPORT SERVICES. IN THE PRESENT CASE ALSO, THE DISPUTE IS REGARDING MARKETING SUPPORT SERVICES PROVIDED BY THE ASSESSEE . HENCE, THE PROFILE OF THE PRESENT ASSESSEE AND ELECTRONICS FOR IMAGING INDIA PVT. LTD. IS SAME. HENCE, WE RESPECTFULLY FOLLOW TH IS TRIBUNAL ORDER AND HOLD THAT IN THE PRESENT CASE ALSO, THIS COMPARABLE I.E. ASIAN BUSINESS EXHIBITION & CONFERENCES LTD. SHOULD BE EXCLUDED FROM THE FINAL LIST OF COMPARABLE. 9. THE LD. DR SUBMITTED THAT THIS COMPANY WAS CHOSE N AS A COMPARABLE BY THE ASSESSEE IN ITS TP STUDY AND AT T HE TIME OF PROCEEDINGS BEFORE THE TPO, THE ASSESSEE SOUGHT TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES ON THE GROUND THAT THIS COMPANY WAS DERIVING INCOME FROM CONDUCTING EXHIBITIONS, ROAD SHOWS, CONFERENCES, CU STOMER EVENTS, ETC., WHEREAS THE ASSESSEE WAS DOING MARKETING SUPPORT SE RVICES AND BOTH THESE SERVICES ARE FUNCTIONALLY NOT COMPARABLE. TH IS OBJECTION WAS NOT ACCEPTED BY THE TPO FOR THE REASON THAT THE ASSESSE E ITSELF HAD CHOSEN THIS COMPANY AS A COMPARABLE COMPANY. 10. WE HAVE CONSIDERED THE OBJECTION OF THE LD. DR AND WE FIND THAT THOUGH THIS COMPANY WAS CHOSEN AS A COMPARABLE COMP ANY BY THE ASSESSEE IN ITS TP STUDY, THE ASSESSEE SOUGHT TO EX CLUDE THIS COMPANY AS A COMPARABLE COMPANY BEFORE THE TPO. MORE IMPORTAN TLY, IN THE APPEAL BEFORE THE CIT(A), THE INCLUSION OF THIS COMPANY WA S CHALLENGED BY THE ASSESSEE. IN THIS WRITTEN SUBMISSIONS FILED BEFOR E THE CIT(A) IN PAGE 17, THE ASSESSEE HAS HIGHLIGHTED THAT THIS COMPANYS SO URCE OF INCOME WAS FROM CONDUCTING EXHIBITIONS AND TRADE FAIRS AND NOT FROM MARKETING SUPPORT ITA NO.2090/BANG/2017 PAGE 6 OF 7 SERVICES AND RELIANCE WAS ALSO PLACED ON THE DECISI ON OF BANGALORE BENCH OF TRIBUNAL IN ELECTRONICS FOR IMAGING INDIA P. LTD . (SUPRA). HOWEVER, THE CIT(A) IN THE IMPUGNED ORDER HAS NOT DEALT WITH THI S SUBMISSION SPECIFICALLY. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE OBJECTION OF THE LD. DR THAT FUNCTIONAL COMPARABILITY CANNOT BE OBJECTED AT THIS STAGE OF PROCEEDINGS IS NOT CORRECT. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF ALCON LABS. P. LTD. (SUPRA) , WE HOLD THAT THIS COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COMPARA BLE COMPANIES. WE MAY ALSO ADD THAT FUNCTIONAL PROFILE OF THE ASSESSE E AND ALCON LABS. P. LTD. ARE IDENTICAL AND NOT DISPUTED. 11. THE NEXT COMPANY SOUGHT TO BE EXCLUDED IS HCCA BUSINESS SERVICES P. LTD. IN THE CASE OF ALCON LABS. P. LTD . (SUPRA) A COMPANY RENDERING SERVICES SIMILAR TO THE ASSESSEE, COMPARA BILITY OF THIS COMPANY HAS BEEN CONSIDERED AND IT WAS HELD THAT THIS COMPA NY IS NOT COMPARABLE WITH THE ASSESSEE PROVIDING MARKETING SUPPORT SERVI CES. FOLLOWING ARE THE RELEVANT OBSERVATIONS:- 9. IN RESPECT OF REMAINING TWO COMPARABLES I.E. 1 ) HCCA BUSINESS SERVICES PVT. LTD. AND 2) KILLICK AGENCIES & MKTG. LTD., WE FIND THAT AS PER THE TRIBUNAL ORDER RENDER ED IN THE CASE OF DCIT VS. ELECTRONICS FOR IMAGING INDIA PVT. LTD. (S UPRA), IT WAS HELD THAT THESE TWO ARE NOT GOOD COMPARABLES BECAUS E THESE ARE FUNCTIONALLY DIFFERENT. WE HAVE ALREADY NOTED THAT THIS TRIBUNAL ORDER IS APPLICABLE IN THE PRESENT CASE. HENCE, WE RESPECTFULLY FOLLOW THIS TRIBUNAL ORDER AND HOLD THAT IN THE PRE SENT CASE ALSO, THESE TWO COMPARABLES I.E. 1) HCCA BUSINESS SERVICE S PVT. LTD. AND 2) KILLICK AGENCIES & MKTG. LTD., ARE RIGHTLY E XCLUDED BY DRP FROM THE FINAL LIST OF COMPARABLE. 12. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE HOLD THAT HCCA BUSINESS SERVICES P. LTD. SHOULD BE REMOVED FROM TH E LIST OF COMPARABLE COMPANIES. ITA NO.2090/BANG/2017 PAGE 7 OF 7 13. THE AO IS DIRECTED TO COMPUTE THE ALP AFTER EXC LUDING THE AFORESAID TWO COMPANIES FROM THE LIST OF COMPARABLE COMPANIES . 14. THE REMAINING GROUNDS WERE NOT PRESSED AND THER EFORE DISMISSED AS NOT PRESSED. 15. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PA RTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 31 ST DAY OF OCTOBER, 2018. SD/- SD/- ( A.K. GARODIA ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 31 ST OCTOBER, 2018. / D ESAI S MURTHY / COPY TO: 1. THE APP ELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.