M/s. Carraro Technologies India Pvt. Ltd., Pune V. Income-tax Officer,

ITA 2189/PUN/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0397 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 08-08-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 19-12-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Keywords: Related party transaction; Transfer pricing; International transaction; Condonation of delay
• Section: 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 2189/PN/2013 %' ( ')( / ASSESSMENT YEAR : 2010-11 M/S. CARRARO TECHNOLOGIES INDIA PVT. LTD., B2/2, MIDC, RANJANGAON, PUNE 412220 PAN : AACCC8571D ....... / APPELLANT ' /VS. INCOME TAX OFFICER, WARD 1(1), PUNE / RESPONDENT ASSESSEE BY : SHRI KISHOR PHADKE REVENUE BY : SHRI P.L. KUREEL / DATE OF HEARING : 02-11-2016 / DATE OF PRONOUNCEMENT : 30-11-2016 * / ORDER PER VIKAS AWASTHY, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDE R OF COMMISSIONER OF INCOME TAX (APPEALS)-IT/TP, PUNE DATED 22 -07-2013 FOR THE ASSESSMENT YEAR 2010-11. 2. THE APPEAL OF THE ASSESSEE HAS BEEN FILED WITH THE DE LAY OF 88 DAYS. THE ASSESSEE HAS FILED A PETITION FOR CONDONATION OF DELAY SUPPORTED BY AN AFFIDAVIT CITING REASONS FOR DELAY IN FILING OF THE APPEAL. 2 ITA NO. 2189/PN/2013, A.Y. 2010-11 AFTER PERUSING THE SAME, WE ARE SATISFIED WITH THE DELAY IN FILING OF APPEAL IS UNINTENTIONAL AND THE SAME IS CONDONED. THE AP PEAL OF THE ASSESSEE IS ADMITTED TO HEARD AND DISPOSED OF ON MERITS. 3. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN THE APPEAL : 1. THE LEARNED CIT(A)-IT/TP ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.72,79,939 U/S 92 C OF THE ITA, 1961 MADE BY LEARNED AO TO THE TAXABLE INCOME OF THE APPELLANT. 2. THE LEARNED CIT-IT/TP ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE LEARNED AO IN REJECTING ONWARD TECHNOLOGIES LIMITED, HAVING OPTC OF (-) 14.86%, AS A VALID COMPARABLE, ON THE M ERE GROUND THAT THE SAID PARTY IS REPORTING LOSSES CONSISTENTLY. THE I- T AUTHORITIES ERRED IN NOT APPRECIATING THAT THERE IS NO ANY RULE OF SUCH REJE CTION OF PUBLIC DOMAIN DATA. 3. ALTERNATIVELY AND WITHOUT PREJUDICE, THE LEARNED CI T(A)-IT /TP ERRED IN LAW AND ON FACTS IN CONFIRMING INCLUSION OF EXTERNA L COMPARABLE CALLED TATA TECHNOLOGIES LIMITED, HAVING HIGHER OPTC OF 31 .18%, DESPITE REMOVAL OF ONWARD TECHNOLOGIES LIMITED, ON THE ANAL OGY OF LOSS MAKING ENTITY. THE LEARNED I-T AUTHORITIES OUGHT TO HAVE R ESORTED TO PROCESS OF FILTERING OF ALLEGED ABNORMAL RESULTS COMPANIES FAI RLY. 4. ALTERNATIVELY AND WITHOUT PREJUDICE, THE LEARNED CI T(A)-IT/TP AND THE LEARNED TPO ERRED IN LAW AND ON FACTS IN NOT APPREC IATING THAT THE COMPANY, M/S TATA TECHNOLOGIES LIMITED, WAS A WRONG INCLUSION IN THE FINAL ARRAY OF COMPARABLES DESPITE THE FACT THAT TH E SAID COMPANY HAS SUBSTANTIAL RELATED PARTY TRANSACTIONS. 5. THE ASSESSEE CRAVES LEAVE TO ADD / MODIFY / DELETE ALL OR ANY OF THE GROUNDS OF APPEAL. 4. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE-COMPANY IS ENGAGED IN PROVIDING DESIGN ENGINEERIN G AND ITES SERVICES TO ITS AES. TO BENCHMARK ITS INTERNATIONAL TRANSACTION THE ASSESSEE HAD ADOPTED TRANSACTIONAL NET MARGIN METH OD (TNMM). THE ASSESSEE SELECTED FOLLOWING FOUR COMPARABLES IN ITS TP STUDY : 3 ITA NO. 2189/PN/2013, A.Y. 2010-11 COMPANYS NAME ADJUSTED OP/OC ONWARD TECHNOLOGIES LTD. - 14.86 TATA TECHNOLOGIES LTD. 31.18 INFOTECH ENTERPRISE LTD. (SEGMENTAL) 1 3.24 KGL SYSTEL LTD. (SEGMENTAL) 5.34 MEAN 8.72 4.1 DURING THE COURSE OF ASSESSMENT THE ASSESSING OFFICER EXCLUDED ONWARD TECHNOLOGIES LTD. FROM THE LIST OF COMPARABLES BEING CONSISTENT LOSS MAKING COMPANY. WITH THE EXECUTION OF ONWARD TECHNO LOGIES LTD. THE ARITHMETIC MEAN OF REMAINING COMPARABLE COMPANIES INCRE ASED TO 16.59% AS AGAINST THE OPERATING MARGIN OF ASSESSEE AT 2.4 6%. SINCE, THE ADJUSTED OPERATING MARGIN OF THE COMPARABLES WAS B EYOND 5%, THE ASSESSING OFFICER MADE ADJUSTMENT OF ` 72,79,939/- IN THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE. 4.2 AGGRIEVED BY THE ASSESSMENT ORDER DATED 31-12-201 2, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE COMMISS IONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APP EALS) REJECTED THE CONTENTION OF THE ASSESSEE AND UPHELD THE FINDINGS OF ASSESSING OFFICER. AGAINST THE ORDER OF COMMISSIONER OF IN COME TAX (APPEALS), THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL. 5. SHRI KISHOR PHADKE APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN UPHOLDING THE EXCLUSION OF ONWARD TECHNOLOGIES LTD. FROM THE LIST OF COMPARABLES ON THE GROUND THAT IT IS A CONSISTENT LOSS M AKING COMPANY. THE LD. AR REFERRED TO PROFIT AND LOSS ACCOUNT OF ONWARD 4 ITA NO. 2189/PN/2013, A.Y. 2010-11 TECHNOLOGIES LTD. FROM THE FINANCIAL YEARS 2006-07 TO 2011 -12 PLACED ON RECORD AT PAGES 78 TO 80 OF THE PAPER BOOK. THE LD . AR SUBMITTED THAT A COMPANY IS SAID TO BE CONSISTENT LOSS MAKING COMP ANY IF IT HAS INCURRED LOSSES IN THREE CONSECUTIVE FINANCIAL YEARS. IN TH E PRESENT CASE ONWARD TECHNOLOGIES LTD. HAS PROFIT IN FINANCIAL YEAR 20 06-07. THE COMPANY HAS INCURRED LOSSES IN FINANCIAL YEARS 2007-08 , 2008-09 AND 2009-10. AGAIN IN THE FINANCIAL YEARS 2010-11 AND 20 11-12 THE COMPANY HAS EARNED PROFITS. THE RELEVANT FINANCIAL YEAR TO BE CONSIDERED FOR DETERMINING WHETHER THE COMPANY IS A CONS ISTENT LOSS MAKING COMPANY OR NOT ARE FINANCIAL YEARS 2006-07, 2007- 08 AND 2008-09. THE LD. AR IN SUPPORT OF HIS CONTENTIONS PLACED RELIANCE ON THE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CA SE OF M/S. SUNGARD SOLUTIONS (INDIA) PVT. LTD. VS. ASSISTANT DIRECTOR O F INCOME TAX IN ITA NO. 370/PN/2013 FOR ASSESSMENT YEAR 2005-06 DECIDED ON 18-01-2016 AND IN THE CASE OF PRINCIPAL GLOBAL SERVICES PV T. LTD. VS. DY. COMMISSIONER OF INCOME TAX IN ITA NO. 280/PN/2014 FOR ASSESSMENT YEAR 2009-10 DECIDED ON 10-04-2015. 6. ON THE OTHER HAND SHRI P.L. KUREEL REPRESENTING THE D EPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISSIONER OF INCOM E TAX (APPEALS) IN REJECTING ONWARD TECHNOLOGIES LTD. AS COMPARABLE. 7. BOTH SIDES HEARD. ORDERS OF THE AUTHORITIES BELOW PER USED. IN APPEAL THE ASSESSEE HAS MADE TWO ALTERNATE SUBMISSIONS. THE FIRST SUBMISSION OF THE ASSESSEE IS THAT ONWARD TECHNOLOGIES LT D. HAS BEEN WRONGLY EXCLUDED FROM THE LIST OF COMPARABLE, THEREFORE, TH E SAME SHOULD INCLUDED IN THE LIST OF COMPARABLES. IN AN ALTERNAT E PRAYER THE LD. AR PRAYED FOR EXCLUDING FROM THE LIST OF COMPARABLES TATA 5 ITA NO. 2189/PN/2013, A.Y. 2010-11 TECHNOLOGIES LTD. HAVING OPERATING MARGIN OF 31.18% ON THE GROUND OF HIGH PROFIT MAKING COMPANY. 8. THERE IS NO DISPUTE IN RESPECT OF SETTLED POSITION THA T THE CONSISTENT LOSS MAKING COMPANY HAS TO BE EXCLUDED FROM T HE LIST OF COMPARABLES. A COMPANY IS SAID TO BE CONSISTENT LOSS MA KING WHEN THE COMPANY HAS INCURRED LOSSES IN THE THREE CONSECUTIVE FINA NCIAL YEARS INCLUDING THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSAC TIONS HAVE BEEN MADE. IN THE INSTANT CASE FINANCIAL YEAR 2009-10 IS RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. THUS, THE FINANCIA L YEARS TO BE CONSIDERED FOR DETERMINING WHETHER THE COMPANY IS CONSIS TENT LOSS MAKING ARE FINANCIAL YEARS 2007-08, 2008-09 AND 2009-10 . A PERUSAL OF THE PROFIT AND LOSS ACCOUNT OF ONWARD TECHNOLOGIES LTD. PLACED ON RECORD SHOWS THAT THE SAID COMPANY HAS SUFFERED LOSSES IN FINANCIAL YEARS 2007-08, 2008-09 AND 2009-10. THE PROFITS/(LOSSES ) BEFORE TAX OF THE COMPANY IN THE RELEVANT THREE FINANCIAL YEARS ARE AS UNDER : FINANCIAL YEAR PROFIT/(LOSS) BEFORE TAX (IN ` ) 2007 - 08 (1,65,87,281) 2008 - 09 (8,89,22,096) 2009 - 10 (5,18,75,427) THUS, IT IS EVIDENT FROM THE PERUSAL OF THE FINANCIAL RESULTS O F ONWARD TECHNOLOGIES LTD. THAT ONWARD TECHNOLOGIES LTD. IS CONSISTENT LOSS MAKING COMPANY, THEREFORE, THE SAID COMPANY CANNOT BE CONSIDERED AS A GOOD COMPARABLE. 9. IN SO FAR AS EXCLUSION OF TATA TECHNOLOGIES LTD., THE LD. AR HAS NOT SUBSTANTIATED AS TO HOW THE SAID COMPANY HAS ABNO RMAL PROFITS. 6 ITA NO. 2189/PN/2013, A.Y. 2010-11 WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE ASSESSEE AN D THE SAME IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 30 TH DAY OF NOVEMBER, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 30 TH NOVEMBER, 2016 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-IT/TP, PUNE 4. ' / THE CIT-I, PUNE 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, %5 ,0 / PRIVATE SECRETARY, ,- , / ITAT, PUNE