BARCO ELECTRONIC SYSTEMS PVT. LTD., NEW DELHI V. DCIT, CENTRAL CIRCLE- 4(1), NEW DELHI

ITA 2148/DEL/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7348 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Assessment Year: 2012-2013
• Appeal Filed On: 28-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: F R MEENA
• Keywords: Transfer pricing; Tax effect; Set aside
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-1, NEW DELHI BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER ITA NO. 2148/DEL/2018 : ASSTT. YEAR: 2012-13 BARCO ELECTRONICS SYSTEMS PVT. LTD., E-20, 1 ST & 2 ND FLOOR, HAUZ KHAS, NEW DELHI-110016 VS DCIT, CENTRAL CIRCLE-4(1), NEW DELHI (APPELLANTT (RESPONDENT) PAN NO. AAA CB5865F ITA NO. 2667/DEL/2018 : ASSTT. YEAR: 2012-13 ADDL. CIT, SPECIAL RANGE-2, NEW DELHI VS BARCO ELECTRONICS SYSTEMS PVT. LTD., E-20, 1 ST & 2 ND FLOOR, HAUZ KHAS, NEW DELHI-110016 (APPELLANTT (RESPONDENT) PAN NO. AAACB5865F CO NO. 117/DEL/2018 (ITA NO. 2667/DEL/2018 : ASSTT. YEAR: 2012-13) BARCO ELECTRONICS SYSTEMS PVT. LTD., E-20, 1 ST & 2 ND FLOOR, HAUZ KHAS, NEW DELHI-110016 VS ADDL. CIT, SPECIAL RANGE-2, NEW DELHI (APPELLANTT (RESPONDENT) PAN NO. AAACB5865F ASSESSEE BY : SH. MUKESH GUPTA, CA REVENUE BY : SH. F. R. MEENA, SR. DR DATE OF HEAR ING: 16 . 08 .20 21 DATE OF PRONOUNCEMENT: 18 .0 8 .20 2 1 ITA NOS. 2148 & 2667/DEL/2018 CO NO. 117/DEL/2018 BARCO ELECTRONICS SYSTEMS PVT. LTD. 2 ORDER PER BENCH: THE PRESENT APPEALS HAVE BEEN FILED BY THE ASSESSE E AND THE REVENUE AGAINST THE ORDERS OF LD. CIT (A)-44, N EW DELHI DATED 31.01.2018 AND CROSS OBJECTION FILED BY THE A SSESSEE. 2. THE TRANSFER PRICING ISSUE RAISED BY THE ASSESSE E IN THE APPEAL PERTAINS TO THE DIRECTION OF THE LD. CIT (A) FOR ADJUSTMENT OF INTEREST ON RECEIVABLES BY DIRECTING TO APPLY LIBOR PLUS 300 BASIS POINTS. THE LD. AR RELIED ON T HE JUDGMENTS OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CAS E OF PR. CIT VS KUSUM HEALTHCARE (P) LTD. IN ITA NO. 765/2016 AND P R. CIT VS M/S BECHTEL INDIA (P) LTD. IN ITA NO. 379/2016. 3. IT WAS FURTHER ARGUED THAT THE MATTER STANDS COV ERED BY THE EARLIER ORDER OF THE CO-ORDINATE BENCH OF ITAT FOR ASSESSMENT YEAR 2010-11 IN ITA NO.1530/DEL/2016 HEL D AS UNDER: 5. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE HAVE NOTED THAT THE ASSESSEE IS NOT CHARGING INTEREST ON OVERDUE DEBTS FROM THE THIRD PARTIES AN D ALSO THE ASSESSEE IS A DEBT FREE COMPANY AND NOT PAYING ANY INTEREST ON FUNDS UTILIZED IS BUSINESS. WE HAVE ALSO NOTED THAT THE ASSESSEE COMPANY HAS A MARGIN OF 23.3% ON SOFTWARE DEVELOPME NT SEGMENT AS COMPARED TO THE MARGIN OF 11.42% OF THE COMPARAB LE COMPANIES. THE WORKING CAPITAL ADJUSTED MARGIN OF THE ASSESSEE HAVE ALREADY FACTORED INTO ACCOUNT THE DELAY IN THE RECEIVABLES AND THEREFORE NO SEPARATE ADJUSTMENT ON THIS ACCOUNT IS REQUIRED TO BE MADE. THE ITA NOS. 2148 & 2667/DEL/2018 CO NO. 117/DEL/2018 BARCO ELECTRONICS SYSTEMS PVT. LTD. 3 CREDIT PERIOD OF THE COMPARABLE COMPANIES HAS BEEN FOUND TO BE 147 DAYS AS AGAINST THE CREDIT PERIOD ALLOWED BY THE AS SESSEE OF THE 30 DAYS. IN VIEW OF THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS EKL APPLIANCES LTD (SUPRA), WE ARE O F THE OPINION THAT IMPACT OF THE DELAYED RECEIVABLES HAS ALREADY BEEN FACTORED IN THE WORKING CAPITAL ADJUSTMENT AND, THEREFORE, ANY FURT HER ADJUSTMENT ON THE OUTSTANDING RECEIVABLES IS NOT REQUIRED SEPA RATELY IN THE INSTANT CASE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADJUSTMENT MADE ON ACCOUNT OF THE OUTSTANDING R ECEIVABLES. 4. IN ADDITION, THE CO-ORDINATE BENCH OF ITAT FOR A SSESSMENT YEAR 2011-12 IN ITA NO. 1531/DEL/2016 HELD AS UNDER : 9. BEFORE US, NO DISTINGUISHING FEATURE IN THE FAC TS OF THE PRESENT CASE AS COMPARED TO ASSESSEES OWN CASE IN AY 2010- 11 HAS BEEN POINTED OUT BY THE REVENUE. FURTHER IT HAS ALSO NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE DECISION OF TH E CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2010-11 HAS BEEN SET ASIDE/ STAYED OR OVER RULED BY THE HIGHER JUDICIAL FORUM. WE FURTHER FIND THAT THE CASE LAW RELIED UPON BY THE L EARNED DR IS DISTINGUISHABLE ON FACTS AND ARE NOT APPLICABLE TO THE PRESENT FACTS OF THE CASE OF THE ASSESSEE. CONSIDERING THE TOTALITY OF THE AFORESAID FACTS AND FOLLOWING THE ORDER OF THE COORDINATE BEN CH IN THE ASSESSEES OWN CASE AND FOR SIMILAR REASONS WE HOLD THAT THE REVENUE WAS NOT JUSTIFIED IN MAKING THE ADDITION. W E THEREFORE SET ASIDE THE ACTION OF AO. 5. SINCE, THERE IS NO DIFFERENCE ON FACTUAL AND LEG AL POSITION IN THE INSTANT YEAR, WE HEREBY DIRECT THAT THE ADDI TION MADE ON THIS ACCOUNT BE DELETED. 6. WITH REGARD TO THE COMPARABLES RAISED IN THE CO, THE ASSESSEE ARGUED THAT THE COMPANY ZYLOG SYSTEMS LTD . CANNOT ITA NOS. 2148 & 2667/DEL/2018 CO NO. 117/DEL/2018 BARCO ELECTRONICS SYSTEMS PVT. LTD. 4 BE CONSIDERED AS THE SAID COMPARABLE IS ENGAGED IN PRODUCT DEVELOPMENT ALONG WITH SOFTWARE DEVELOPMENT SERVICE S WHEREIN 38% OF THE REVENUE IS DERIVED FROM SOFTWARE PRODUCT ION SOLUTION WHEREAS THE ASSESSEE COMPANY IS NOT INTO D EVELOPMENT OF ANY MARKETABLE SOFTWARE OR SOFTWARE SERVICES. FU RTHER, IT WAS ARGUED THAT THE COMPARABLE OWNS RS.110 CRORES OF IN TANGIBLES WHICH FORM 49% OF THE NET FIXED ASSETS. 7. WE HAVE CONSIDERED THE FACT ON RECORD. THE ASSES SEE IS A CAPTIVE UNIT FOR OFFSHORE DEVELOPMENT OF PRODUCTS F OR ITS AE AND THE ENTIRE SALES ARE TO THE AE ONLY. THERE WERE NO MARKETABLE SOFTWARE OR SERVICES TO ANY ENTITY OTHER THAN AE. H ENCE, ON THE ASPECT OF FUNCTIONS, WE HOLD THAT ZYLOG SYSTEMS LT D. CANNOT BE CONSIDERED AS A COMPARABLE. 8. WITH REGARD TO A COMPARABLE ACROPETAL TECHNOLOG IES LTD., IT WAS SUBMITTED THAT THE ASSESSEE HAS CONSIDERED S AME IN THEIR OWN TP STUDY HOWEVER IT WAS BROUGHT TO THE NOTICE T O THE TPO DURING THE PROCEEDINGS THAT THE COMPANY HAS EARNED 43.6% OF PROFIT OWING TO THE EXTRAORDINARY EVENT OF ACQUISIT ION OF ANOTHER COMPANY. THE TPO HAS FAILED TO CONSIDER THIS ISSUE DURING HIS TP STUDY. SINCE, THE EXTRAORDINARY EVENT LED TO SPIKE IN THE PROFITS, WE HOLD THAT THE SAME CANNOT BE CONSIDERED AS THE C OMPARABLE. 9. WITH REGARD TO THE APPEAL OF THE REVENUE IN ITA NO.2667/DEL/2018 FOR AY 2012-13, IT WAS UNDISPUTED BY BOTH THE PARTIES THAT THE TAX EFFECT IS LESS THAN MONETA RY LIMIT PRESCRIBED BY THE CBDT, HENCE DISMISSED. ITA NOS. 2148 & 2667/DEL/2018 CO NO. 117/DEL/2018 BARCO ELECTRONICS SYSTEMS PVT. LTD. 5 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.2148/DEL/2018 IS ALLOWED AND THE APPEAL OF THE R EVENUE IN ITA NO.2667/DEL/2018 IS DISMISSED. THE CO NO. 117/D EL/2018 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18/08/2021. SD/- SD/- (SUCHITRA KAMBLE) (DR. B. R. R. KUMAR) JUDICIAL MEMBER ACCOU NTANT MEMBER . DATED: 18/08/2021 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR