Gameloft Software Private Limited, Secunderabad V. ACIT, Circle-2(3), Hyderabad

ITA 25/HYD/2012

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2701 (ITAT-HYDERABAD)
• Duration Of Justice: 5 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 27-07-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 06-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHAN KUMAR SINGHANIA
• Assessee Lawyers: SAMPATH RAGHUNATHAN
• Keywords: Transfer pricing; International transaction; Arm length price
• Section: 143(3)

Judgement Text

ITA NO 25 OF 2012 GAMELOFT SOFTWARE P LTD HYDERAB AD PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.25/HYD/2012 (ASSESSMENT YEAR: 2007-08) M/S. GAMELOFT SOFTWARE PRIVATE LIMITED HYDERABAD PAN: AACCG 4168 L VS ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 2(3) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI SAMPATH RAGHUNATHAN FOR REVENUE : SHRI MOHAN KUMAR SINGHANIA, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2007-08. THE ASSESSEE HAS FILED THE FOLLOWING REVISED AND CONCIS E GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN CONTRARY TO LAW, GAMELOFT SOFTWARE PRIVATE LIMITED ('APPELLANT') RESPECTFULLY CRAVES LEAV E TO PREFER AN APPEAL AGAINST THE ORDER PASSED BY THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 2(3), HYDERABAD ('LD. AO') DATED 27 OCTOBER 2011 RECEIVED ON 08 NOVEMBER 2011 ('FINAL ORDER') AS THE FINAL ORDER PASSED BY THE LD. AO UNDER SECTION 143(3) READ WITH SECTION 144C(5) AND READ WITH THE ORDER PASSED BY THE LD. ADD\. COMMISSIONER OF INCOME TAX (TRANSFER PRICING) ('LD. TPO'), UNDER SECTION 92CA(3) OF THE ACT IS BAD IN LAW. DATE OF HEARING : 27.07.2017 DATE OF PRONOUNC EMENT : 09.08.2017 ITA NO 25 OF 2012 GAMELOFT SOFTWARE P LTD HYDERAB AD PAGE 2 OF 6 2. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN CONTRARY TO LAW, THE LD. AO ERRED IN REFERRING THE APPELLANT'S CASE TO LD. TPO, NOTWITHSTANDING THE FACT THAT, APPELLANT'S TURNOVER FOR THE ASSESSMENT YEAR 2007-08 IS INR 3.97 CRORES ONLY WHICH IS CONTRARY TO THE INSTRUCTION NO. 3 OF 2003 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES ('CBDT'), WHEREIN IT HAS BEEN PROVIDED THAT FOR REFERENCE TO LD. TPO THE AGGREGATE VALUE OF INTERNATIONAL TRANSACTION (I.E. THRESHOLD LIMIT) SHALL EXCEED INR 5 CRORES. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN CONTRARY TO LAW, THE LD. AO/LD. TPO ERRED IN SELECTING COMPARABLE COMPANIES ENGAGED IN PROVIDING HIGH-END SOFTWARE DEVELOPMENT SERVICES AS AGAINST COMPANIES WHICH ARE EXCLUSIVELY INVOLVED IN THE DEVELOPMENT OF GAMING SOFTWARE. THE APPELLANT ALSO SUBMITS THAT IN THE INTERNATIONAL SCENARIO ESPECIALLY IN GAMING SOFTWARE INDUSTRY, THE MARGINS RANGE BETWEEN5% TO 7% . 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN CONTRARY TO LAW, THE LD. AO/TPO ERRED AND THE HON'BLE DRP FURTHER ERRED IN NOT ALLOWING ADJUSTMENTS IN RESPECT OF UNDER-UTILIZED CAPACITY OF INFRASTRUCTURE FACILITY OF THE APPELLANT AS THE YEAR UNDER CONSIDERATION BEING THE INITIAL YEAR OF ITS OPERATIONS. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN CONTRARY TO LAW, THE LD. TPO AND HON'BLE DRP OUGHT TO HAVE RESTRICTED THE UPPER LIMIT ON TURNOVER FILTER TO HAVE COMPARABLES WITHIN THE LIMITED MAGNITUDE OF THE APPELLANT, THEREBY NOT COMPARING THE APPELLANT WITH INFOSYS LIMITED AND WIPRO LIMITED. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN CONTRARY TO LAW, THE LD. TPO AND HON'BLE DRP ITA NO 25 OF 2012 GAMELOFT SOFTWARE P LTD HYDERAB AD PAGE 3 OF 6 ERRED IN CONTRARY TO THE LAW BY NOT ACCEPTING THE FILTERS ADOPTED BY THE APPELLANT. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN CONTRARY TO LAW, THE LD. AO/TPO ERRED IN NOT CONSIDERING THE ADVANCE RECEIVED FROM THE ASSOCIATED ENTERPRISE WHILE COMPUTING WORKING CAPITAL ADJUSTMENT AND THEREBY MAKING AN INFRUCTUOUS ADJUSTMENT. THE APPELLANT CRAVES LEAVE TO ADD TO/ALTER/AMEND/ SUBSTITUTE ANY OF THE ABOVE GROUNDS OF APPEAL, AT THE TIME, BEFORE OR AT THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE APPELLATE AUTHORITY TO DECIDE THIS APPEAL ACCORDING TO LAW. 2. IN ADDITION TO THE ABOVE, THE ASSESSEE VIDE LETT ER DATED 5.10.2016, HAS ALSO RAISED THE FOLLOWING ADDITIONAL GROUNDS OF APPEAL: THE GAMELOFT SA, THE PARENT COMPANY, HAS RE- ALLOCATED ONETIME COST OF EUROS 4,80,000/- BASED ON COEFFICIENTS ON AVERAGE BILLING ALL OVER THE WORLD. A COPY OF THE WORKING WAS SUBMITTED TO THE TPO AS WELL AS TO THE DRP. THIS IS NOT PART OF THE INTERNATIONAL TRANSACTION ENTERED INTO WITH THE ASSOCIATED ENTERPRISE FOR THE PURPOSE OF EXPORT SALES AS IT IS ONLY ALLOCATION OF HEAD OFFICE EXPENSES TO THE SUBSIDIARIES ALL OVER THE WORLD. IN THE BOOKS OF ACCOUNTS THIS DEBIT NOTE AMOUNT HAS BEEN REDUCED FROM THE EXPORT SALES INSTEAD OF SHOWING IT AS A SEPARATE EXPENDITURE. IN VIEW OF THIS THE ACTUAL GROSS SALES SHOULD HAVE BEEN COMPARED INSTEAD OF THE REDUCED SALES. IT IS ALSO SUBMITTED THAT ON A PERUSAL OF THE ALLOCATION OF COST, THERE IS PRIOR PERIOD EXPENDITURE ALSO ALLOCATED FOR THE MONTH OF JANUARY 2006 TO MARCH 2006, WHICH WORKS OUT TO EUROS 1,20,000 OR EQUIVALENT TO RS. 69,91,200/-. THIS ALSO NEED ITA NO 25 OF 2012 GAMELOFT SOFTWARE P LTD HYDERAB AD PAGE 4 OF 6 ADJUSTMENT TO ARRIVE AT THE CORRECT COMPARABLE EXPORT SALES. THE ONE TIME ALLOCATION OF COST FROM THE PARENT COMPANY SHOULD BE EXCLUDED FROM THE OPERATION COST TO ARRIVE AT THE PLI. WITHOUT PREJUDICE TO THE EXCLUSION OF THE COMPARABLE BASED ON HIGH TURNOVER OR SUPER PROFITS, BASED ON THE PLI WORKED OUT BY THE TPO AFTER CONSIDERING THE RELIEF GIVEN BY THE DRP, THE REVISED ALP WORKS OUT TO RS. 5,68,45,176/-THE ACTUAL PRICE RECEIVED FROM THE GAMELOFT SA ON ACCOUNT OF EXPORT SALES IS RS 6,13,95,237 /-. YOUR APPELLANT SUBMITS THAT THE DETAILS PERTAINING TO THE DEBIT NOTE AND REASONS GIVEN BY THE HOLDING COMPANY BEFORE THE TRANSFER PRICING OFFICER AND DISPUTE RESOLUTION PANEL. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE FOLLOWING ADDITIONAL GROUNDS ARE RAISED: 1. YOUR APPELLANT SUBMITS THAT THE VALUE 01 THE INTERNATIONAL TRANSACTION HAS TO BE CONSIDERED AS RS 6,13,95,237/- AS AGAINST RS 3,97,02,609/-, TO ARRIVE AT THE CORRECT ARM LENGTH PRICE. 2. YOUR APPELLANT SUBMITS THAT THE ALLOCATION OF HEAD OFFICE EXPENSES SHOULD NOT BE CONSIDERED AS PART OF THE OPERATING COST WHILE WORKING THE PLI FOR THE REASON THAT SUCH EXPENDITURE DOES NOT PERTAIN TO THE GAMES DEVELOPED AT THIS UNIT. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND BEING A LEGAL ISSUE THESE GROUNDS ARE TAKEN FOR THE FIRST TIME BEFORE THE HON'BLE ITAT. WE PRAY THAT THE HON'BLE MEMBERS MAY KINDLY ADMIT THE ADDITIONAL GROUNDS. 3. HOWEVER, AT THE TIME OF HEARING, THE LEARNED COU NSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE DOES N OT WISH TO PRESS THE ADDITIONAL GROUNDS OF APPEAL AND THEY ARE ACCORDINGLY REJECTED. ITA NO 25 OF 2012 GAMELOFT SOFTWARE P LTD HYDERAB AD PAGE 5 OF 6 4. AS REGARDS THE REVISED AND CONCISED GROUNDS OF A PPEAL, GROUND NO.1 IS GENERAL IN NATURE AND NEEDS NO ADJUD ICATION AND GROUND NO.2 IS NOT PRESSED BY THE ASSESSEE AND IT I S ACCORDINGLY REJECTED. 5. AS REGARDS GROUNDS 3 TO 7, THE LEARNED COUNSEL F OR THE ASSESSEE ADVANCED DETAILED ARGUMENTS ON THE COMPARA BLES AND SUBMITTED THAT THE ISSUE NEEDS RECONSIDERATION BY T HE AO/TPO IN VIEW OF THE DECISION OF THE COORDINATE BENCH OF THI S TRIBUNAL IN THE ASSESSEES OWN CASE IN THE SUBSEQUENT A.YS.2008- 09 & 2010- 11. IN REPLY THERETO, THE LEARNED DR SUBMITTED THAT THE ENTIRE ISSUE NEEDS TO BE REFERRED BACK TO THE TPO FOR RE-A DJUDICATION FOR THE SIMPLE REASON THAT THERE IS DIFFERENCE IN THE F IGURES OF TURNOVER REPORTED BY THE ASSESSEE IN THE T.P STUDY AND AS RAISED BY THE ASSESSEE IN THE ADDITIONAL GROUNDS OF APPEAL , THOUGH IT IS NOT PRESSED BY IT AT THIS STAGE. HE DREW OUR ATTENT ION TO THE FACT THAT IN GROUND NO.2, THE ASSESSEE HAS REPORTED THAT ITS TURNOVER IS ONLY RS.3.97 CRORES WHEREAS IN THE ADDITIONAL GR OUNDS OF APPEAL, IT IS STATED THAT THE VALUE OF THE INTERNAT IONAL TRANSACTIONS HAS TO BE CONSIDERED AS RS.6,13,95,237 AS AGAINST R S.3.97 CRORES TO ARRIVE AT THE CORRECT ARMS LENGTH PRICE. THEREF ORE, ACCORDING TO HIM, THERE IS AN AMBIGUITY IN THE T.P. STUDY SUBMIT TED BY THE ASSESSEE AND THEREFORE, THE ENTIRE T.P. STUDY HAS T O BE REDONE AGAIN. 6. THE LEARNED COUNSEL FOR THE ASSESSEE ADMITTED TO THE ABOVE AMBIGUITY IN THE FIGURES OF THE TURNOVER AND SUBMITTED THAT ITA NO 25 OF 2012 GAMELOFT SOFTWARE P LTD HYDERAB AD PAGE 6 OF 6 HE HAS NO OBJECTION IF THE ENTIRE ISSUE IS REMITTED TO THE FILE OF THE TPO FOR RECOMPUTATION OF THE ALP IN ACCORDANCE WITH LAW. 7. HAVING REGARD TO THE RIVAL CONTENTIONS AND ALSO BEING SATISFIED THAT THERE IS AN AMBIGUITY IN THE TURNOVE RS REPORTED BY THE ASSESSEE AND ALSO AS THE TRIBUNAL IN THE ASSESS EES OWN CASE FOR THE SUBSEQUENT A.YS HAD REMANDED THE ISSUE FOR RECONSIDERATION ON THE COMPARABLE, WE ARE OF THE OP INION THAT THE ENTIRE ISSUE NEEDS TO BE SET ASIDE. ACCORDINGLY WE REMAND THIS ISSUE TO THE FILE OF THE AO/TPO FOR RECOMPUTING THE ALP IN ACCORDANCE WITH THE LAW. NEEDLESS TO MENTION THAT T HE ASSESSEE SHALL BE GIVEN A FAIR OPPORTUNITY OF HEARING. 8. IN THE RESULT, ASSESSEES APPEAL IS TREATED AS A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH AUGUST, 2017. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 9 TH AUGUST, 2017. VINODAN/SPS COPY TO: 1 C/O M. ANANDAM & CO. CAS, 7A SURYA TOWERS, S.P. R OAD, SECUNDERABAD 500003 2 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 2(3) HY DERABAD 3 DRP, HYDERABAD 4 JT. COMMISSIONER (TRANSFER PRICING) HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER