A.C.I.T.-6(3), MUMBAI V. GLOBAL MARKETS CENTRE PVT. LTD., MUMBAI

ITA 2612/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71424 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 14-10-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 18-04-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Transfer pricing; Principle of natural justice; International transaction; Retrospective amendment
• Section: 92D; 133(6); 10B

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE S/SHRI B.R.MITTAL,(JM) AND D. KARUNAKARA RAO, (AM) . . , . , I.T.A. NO.2612/MUM/2012 ( / ASSESSMENT YEAR:2007-08) ASSTT. COMMISSIONER OF INCOME TAX- 6(3), ROOM NO.522, 5 TH FLOOR, AAYAKAR BHAVAN, M K ROAD, MUBMAI-400020 / VS. M/S GLOBAL MARKETS CENTRE PVT.LIMITED, TOWER-2, LOGITECH PARK, M.V.ROAD, SAKI NAKA, ANDHERI (E), MUMBAI-400072 ( # / APPELLANT) .. ( $# / RESPONDENT) CROSS-OBJECTION NO.87/MUM/2013 IN I.T.A. NO.2612/MUM/2012 M/S GLOBAL MARKETS CENTRE PVT.LIMITED, TOWER-2, LOGITECH PARK, M.V.ROAD, SAKI NAKA, ANDHERI (E), MUMBAI-400072 / VS. ASST T. COMMISSIONER OF INCOME TAX- 6(3), ROOM NO.522, 5 TH FLOOR, AAYAKAR BHAVAN, M K ROAD, MUBMAI-400020 ./ ./PAN/GIR NO. : AACCG6204D # / APPELLANT BY : S HRI AJIT KUMAR JAIN $# ( /RESPONDENT : SHRI HIREN DEDHIA - COMPANYS REPRESENTATIVE ( + / DATE OF HEARING : 14.10.2013 ( + /DATE OF PRONOUNCEMENT : 25.10.2013 / O R D E R PER B.R.MITTAL, JM: THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSMENT YEAR 2007-08 AGAINST ORDER OF LD. CIT(A) DATED 23.2.2012 ON FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN GIVING THE BENEFIT OF SAFE-HARBOU R OF 5% UNDER THE 2 ND PROVISO TO SECTION 92C(2), WHEN THE SAFE-HARBOUR IS NOT IN THE NATURE OF A STANDARD DEDUCTION AS CAN BE DEDUCED FROM THE MEMORANDUM TO THE FINANCE BILL (2) OF 2009, AND CBDT NOTIFICATION F NO.142/13/2010-SO(TP L) DATED 30.09.2010; I.T.A. NO.2612/MUM/2012 CONO.87/MUM/2013 2 2. THE APPELLANT PRAYS THAT THE ORDER OF LD. CIT(A )J ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO BE RESTORED. 2. ASSESSEE HAS ALSO FILED CROSS-OBJECTION TAKING FOLLOWING GROUNDS : EACH OF THE FOLLOWING GROUNDS ARE INDEPENDENT OF, AND WITHOUT PREJUDICE TO ONE ANOTHER: WITHOUT PREJUDICE TO THE CONCLUSION IN THE ORDER O F THE CIT(A)-15: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE HON'BLE CIT(A) ERRED IN UPHOLDING/CONFIRMING THE ACTION OF THE TPO OF DISREGARDING THE BENCHMARKING ANALYSIS AND COMPARABLE COMPANIES SELE CTED BY THE APPELLANT BASED ON THE CONTEMPORANEOUS DATA IN THE TRANSFER P RICING STUDY REPORT MAINTAINED AS PER SECTION 92D OF THE ACT READ WIT H RULE 10D OF THE INCOME TAX RULES, 1962 (THE RULES) AND THE VARIOUS SUBMI SSIONS MADE BY APPELLANT; 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE HON'BLE CIT(A) ERRED IN UPHOLDING/ CONFIRMING THE ACTION OF THE TPO OF CONDUCTING A FRESH BENCHMARKING ANALYSIS USING NON-CONTEMPORANEO US DATA AND SUBSTITUTING THE APPELLANT'S ANALYSIS WITH FRESH BENCHMARKING AN ALYSIS ON HIS OWN CONJECTURES AND SURMISES. THUS THE APPELLANT PRAYS THAT THE FRE SH BENCHMARKING ANALYSIS CONDUCTED BY THE LD. TPO IS LIABLE TO BE QUASHED O R ALTERNATIVELY IGNORED; 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE CIT(A) ERRED, IN UPHOLDING /CONFIRMING THE ACTION O F THE TPO OF ADOPTING AN ARBITRARY SEARCH STRATEGY FOR SELECTION OF ALLEGED COMPARABLE C OMPANIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS IGNORING THE R ULES 10B(2) AND (3) OF THE INCOME TAX RULES 1962 GOVERNING COMPARABILITY ANAL YSIS AND ALSO IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. THUS THE APPELLANT P RAYS THAT THE ALLEGED COMPARABLES SELECTED BY THE LEARNED TPO SHOULD BE R EJECTED; 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE HON'BLE CIT(A) ERRED, IN UPHOLDING /CONFIRMING THE ACTION O F THE TPO OF USING DATA OBTAINED UNDER SECTION 133(6) OF THE ACT WHICH WAS NOT AVAILABLE IN PUBLIC DOMAIN AS ON SPECIFIED DATE (AS DEFINED IN SECTIO N 92F(IV) OF THE ACT READ WITH RULE 10B(4) OF THE RULES; 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE HONBLE CLT(A) ERRED IN UPHOLDING/CONFIRMING THE ACTION OF THE TPO WITH RESPECT TO FUNCTIONAL NON-COMPARABILITY OF SERVICES RENDERED BY THE APPELLANT WITH THE SERVICES RENDERED BY THE ALLEGED COMPARABLES SELECT ED BY THE TPO; 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE CIT(A) ERRED IN UPHOLDING /CONFIRMING THE ACTION O F THE TPO OF COMPARING THE HIGH END STRUCTURAL ENGINEERING AND DESIGNING SERVI CES OF MOLD-TEK TECHNOLOGIES LIMITED WITH THE SUPPORT SERVICES OF T HE APPELLANT; 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE HON'BLE CIT(A) ERRED IN UPHOLDING / CONFIRMING THE ACTION O F THE TPO OF ADOPTING I.T.A. NO.2612/MUM/2012 CONO.87/MUM/2013 3 INCONSISTENT CRITERIA FOR REJECTING THE APPELLANT'S COMPARABLES AND SELECTING FRESH SET OF COM PARABLES WHILE DETERMINING ALP OF INTERN ATIONAL TRANSACTIONS; 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HON'BLE CIT(A) ERRED IN UPHOLDING /CONFIRMING THE ACTION OF THE TPO OF DISREGARDING THE APPELLANT'S CONTENTION TO REJECT VISHAL INFORMATION TECHNOLOGIES LIMITED WITHOUT APPRECIATING THE DIFFERENCES IN THE BUSINESS MODEL; 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HON'BLE CIT(A) ERRED IN UPHOLDING / CONFIRMING THE ACTION O F THE TPO OF SELECTING COMPANIES LIKE MAPLE E-SOLUTIONS LIMITED AND TRITON CORPORATION LIMITED WHOSE MARGINS / BOOK RESULTS ARE NOT RELIABLE; 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE CIT(A) ERRED IN UPHOLDING /CONFIRMING THE ACTION OF THE TPO OF NOT REJECTING COMPANIES LIKE INFOSYS BPO LIMITED AND WIPRO LIMITE D WITH SIGNIFICANTLY HIGH TURNOVER AS COMPARED TO THE APPELLANT; 11. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE HON'BLE CIT(A) ERRED IN UPHOLDING / CONFIRMING THE ACTION O F THE TPO IN REJECTING THE WITHOUT PREJUDICE CONTENTION OF THE APPELLANT TO CO MPUTE THE MARGIN OF ALLEGED COMPARABLE COMPANIES BASED ON MULTIPLE YEAR FINANCI AL DATA; 12. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE HON'BLE CIT(A) ERRED IN UPHOLDING / CONFIRMING THE ACTION O F THE TPO IN NOT ALLOWING RISK ADJUSTMENT IN ACCORDANCE WITH THE PROVISIONS OF RU LE 10B OF THE INCOME TAX RULES, 1962 TO ACCOUNT FOR DIFFERENCE BETWEEN INTER NATIONAL TRANSACTIONS AND THE ALLEGED COMPARABLE UNCONTROLLED TRANSACTIONS SELECT ED BY THE LEARNED AO/TPO; 13. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED HON'BLE CIT(A) ERRED IN CONFIRMING THE ACTION OF TH E TPO IN RECORDING ERRONEOUS REASONS WHILE DEMONSTRATING THAT CONDITION MENTIONE D IN CLAUSE (A) OF SECTION 92C(3) OF THE ACT WAS SATISFIED BEFORE MAKING AN AD JUSTMENT TO THE INCOME OF THE APPELLANT; AND 14. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED HON'BLE CIT(A) ERRED IN UPHOLDING / CONFIRMING THE ACTION OF THE TPO IN NOT DEMONSTRATING THAT THE MOTIVE OF THE APPELLANT WAS TO SHIFT PROFITS OUTSIDE OF INDIA BY MANIPULATING THE PRICES CHARGED IN ITS INT ERNATIONAL TRANSACTIONS WHICH IS A PRE - REQUISITE CONDITION TO MAKE ANY ADJUSTMENT UNDER THE PROVISION OF CHAPTER X OF THE ACT. 3. THE RELEVANT FACTS ARE THAT ASSESSEE IS ENGAGE D IN THE BUSINESS OF GLOBAL PROCESSING CENTRE FOR UNDERTAKING BACK OFFICE PROCE SSING/SUPPORT SERVICES MAINLY TO SUPPORT VARIOUS BUSINESS LINES OF DEUTSCHE BANK GR OUP ENTITIES OVERSEAS. AO MADE REFERENCE U/S 92CA(1) OF THE INCOME TAX ACT, 1961 ( THE ACT) TO THE TRANSFER PRICING OFFICER (TPO) FOR COMPUTATION OF ARMS LENGTH P RICE (ALP) IN RESPECT OF INTERNATIONAL TRANSACTIONS. THE TPO COMPUTED THE ADJUSTMENT TO ALP OF RS.1,51,66,149/- AS THE TPO COMPUTED ALP IN RESPECT OF BUSINESS SUPPORT S ERVICES OF RS.6,01,75,149/- IN STEAD OF RS.45,009,000/- COMPUTED BY ASSESSEE. P URSUANT TO TPOS ORDER UNDER I.T.A. NO.2612/MUM/2012 CONO.87/MUM/2013 4 SECTION 92CA(3) OF THE ACT DATED 27.10.2010, THE A O MADE ADDITION OF RS.1,51,66,149/- WHILE MAKING ASSESSMENT VIDE ORDE R DATED 31.12.2010. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE LD. CIT(A) INTERALIA CONTENDING THAT TPO ADOPTED THE SET OF 25 COMPARABLES WITH ARITHMETIC MEAN OF 30.75% AFTER REJECTING THE SET OF COMPARABLES ADOPTED BY ASSESSEE COMPUTED ARITHMETIC MEAN OF PROFIT LEVEL INDICATOR (PLI) AT 16.16%. THE ASSESSEE ADOPTED TNM M TO BENCHMARK WITH ITS INTERNATIONAL TRANSACTIONS, WITH OPERATING PROFIT O VER TOTAL COST AS PLI AT 23%. IN THE GROUNDS OF APPEAL FILED BEFORE LD. CIT(A), ASSESSE E DISPUTED THE APPROACH FOLLOWED BY TPO IN SELECTING THE COMPARABLES. ASSESSEE ALSO T OOK A GROUND OF APPEAL VIZ GROUND NO.5 BEFORE LD. CIT(A) AS UNDER : 5. THE LD. AO/TPO HAS ERRED, IN LAW, BY NOT PROV IDING THE APPELLANT THE BENEFIT OF 5 PERCENT DEDUCTION FROM THE ALP. THE LD. AO/TPO HAS FAILED TO APPRECIATE THAT THE AMENDMENT MADE TO SECTION 92C( 2) OF THE ACT CANNOT HAVE RETROSPECTIVE EFFECT AND CANNOT BE APPLIED FOR AY- 2007-08. 4. DURING THE COURSE OF HEARING, ASSESSEE FILED L ETTER BEFORE LD. CIT(A) DATED 22.2.2012, THE CONTENTS OF WHICH HAVE BEEN STATED BY LD. CIT(A) IN PARA 4.1 OF THE IMPUGNED ORDER. ASSESSEE SUBMITTED THAT TO BUY PE ACE OF MIND AND TO AVOID PROJECTED LITIGATION IF THE BENEFIT OF 5% OF DEDUCTION AS PROVIDED TO THE ASSESSEE FROM ALP, THE ASSESSEE WILL NOT PRESS OTHER GROUNDS OF APPEAL. ASSESSEE ALSO STATED THAT THE BENEFIT OF 5% DEDUCTION FROM ALP IS ALLOWED AS STANDARD DE DUCTION PRIOR TO AMENDMENT MADE BY FINANCE ACT, 2009. LD. CIT(A), AFTER CONSIDERI NG THE DECISION OF ITAT, MUMBAI BENCH IN THE CASE OF PHOENIX MECANO (INDIA) LTD., AY 2007-08, IN ITA NO.7646/MUM/2011, ALLOWED BENEFIT OF -5% AS SOUGH T BY ASSESSEE AS PER PROVISO TO SECTION 92C(2) OF THE ACT, THEREFORE, OTHER GROUNDS TAKEN BY ASSESSEE HAVE NOT BEEN ADJUDICATED BY LD. CIT(A). IN VIEW OF ABOVE, THE DEPARTMENT HAS FILED THIS APPEAL AND CONSEQUENTLY, ASSESSEE HAS ALSO FILED CROSS-OBJECTI ON. 5. AT THE TIME OF HEARING, LD. REPRESENTATIVE OF AS SESSEE SUBMITTED THAT DEPARTMENT HAS FILED THE APPEAL DISPUTING THE BENEFIT OF -5% DEDUCTION ALLOWED TO THE ASSESSEE BY LD. CIT(A) AS PER PROVISO TO SECTION 92C(2) OF THE ACT OUT OF THE ADJUSTMENT SUGGESTED BY AO/TPO, THE OTHER GROUNDS TAKEN BY ASSESSEE BEFO RE LD. CIT(A) REQUIRE ADJUDICATION ON MERITS. HE SUBMITTED THAT THE MATTER MAY BE R ESTORED TO LD. CIT(A) TO DECIDE THE GROUNDS TAKEN BY ASSESSEE ON MERITS AS THE SAID GRO UNDS WERE NOT PRESSED CONDITIONALLY AS PER LETTER DATED 22.2.2012. I.T.A. NO.2612/MUM/2012 CONO.87/MUM/2013 5 6. LD. DR HAS NO OBJECTION TO RESTORE THE MATTER TO THE LD. CIT(A) TO DECIDE THE SAME AFRESH ON MERITS BY A SPEAKING ORDER. 7. IN VIEW OF ABOVE SUBMISSIONS OF LD. REPRESENTATI VES OF THE PARTIES AND CONSIDERING THE ORDER OF LD. CIT(A), WE SET ASIDE IMPUGNED ORDER OF LD. CIT(A) AND RESTORE THE MATTER TO THE FILE OF LD. CIT(A) WITH A DIRECTION TO DECIDE THE ISSUE/GROUNDS OF APPEAL TAKEN BY ASSESSEE ON MERITS BY A REASONED OR DER AFTER GIVING DUE OPPORTUNITY OF HEARING TO THE PARTIES AS PER LAW. HENCE, GROUNDS OF APPEAL TAKEN BY REVENUE AS WELL AS BY ASSESSEE IN CROSS-OBJECTION ARE ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, THE APPEAL OF THE DEPARTMENT AND CROSS-OBJECTION FILED BY ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 25 OCTOBER, 2013 ( / 0 25 TH OCTOBER, 2013 ( SD SD ( . / D. KARUNAKARA RAO) ( . . /B.R.MITTAL) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI: ON THIS 25 TH DAY OF OCTOBER, 2013 . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1 . # / THE APPELLANT 2. $# / THE RESPONDENT. 3. 4 ( ) / THE CIT(A)- CONCERNED 4. 4 / CIT CONCERNED 5. 5 $7 , + 7 , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) + 7 , /ITAT, MUMBAI