M/s. IGEFI Software India Private limited, Bengaluru V. Assistant Commissioner of Income Tax, Bengaluru

ITA 2614/BANG/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 2352 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 8 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 05-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P V PRADEEP KUMAR
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Transfer pricing

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI B.R BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A NO.2614/BANG/2017 ASSESSMENT YEAR : 2013-14 IGEFI SOFTWARE INDIA PVT. LTD., (FORMERLY FINCH SOFTWARE INDIA PVT. LTD), 3 RD , 4 TH AND 5 TH FLOORS, SAFINA TOWERS, NO.3, ALI ASKAR ROAD, VASANTH NAGAR, BENGALURU-560 052. PAN AAACF 4678 A VS. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-3(1)(1), BENGALURU. APPELL ANT RESPONDENT APPELLANT BY : SHRI PADAMCHAND KHINCHA, C.A RESPONDENT BY : DR. P.V PRADEEP KUMAR, ADDL. CIT (DR) DATE OF HEARING : 31.07.2019 DATE OF PRONOUNCEMENT : 04.09.2019 O R D E R PERB.R BASKARAN,ACCOUNTANT MEMBER THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 16-10-2017 PASSED BY LD CIT(A)-3, BENGALURU AND IT RELATES TO THE ASSESSMENT YEAR 2013-14. 2. THE GROUND NO.1 IS GENERAL IN NATURE AND GROUN D NO.10 IS CONSEQUENTIAL. THE REMAINING GROUND RELATE TO THE TRANSFER PRICING ADJUSTMENT MADE BY THE TPO AND CONFIRMED BY LD CIT( A). EVEN THOUGH THE ASSESSEE HAS RAISED CERTAIN LEGAL GROUND S IN THE GROUNDS IT(TP)A NO.2614/BANG/2017 PAGE 2 OF 6 OF APPEAL, YET THE LD A.R RESTRICTED HIS ARGUMENTS ON EXCLUSION OF CERTAIN COMPARABLES. ACCORDINGLY OTHER GROUNDS ARE TREATED AS NOT PRESSED. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF R ENDERING SOFTWARE DEVELOPMENT, TESTING, DEBUGGING & SOFTWARE MAINTENA NCE SERVICES. DURING THE YEAR IT HAS PROVIDED SOFTWARE SERVICES T O ITS AE TO THE TUNE OF RS.32.12 CRORES. THE ASSESSEE ADOPTED TNMM METHOD AS APPROPRIATE METHOD AND OPERATING PROFIT/OPERATING C OST (OP/OC) AS ITS PLI, WHICH WORKED OUT TO 17.98%. THE ASSESS EE SELECTED TEN COMPARABLE COMPANIES, WHOSE AVERAGE PIL WORKED OUT TO 12.96%. ACCORDINGLY, THE ASSESSEE CLAIMED THAT THE TRANSACT IONS WITH ITS AE WERE AT ARMS LENGTH. 4. THE TPO, HOWEVER, SELECTED FOLLOWING COMPARAB LES, WHOSE AVERAGE PLI WAS 20.90%:- SN NAME OF TAX PAYER OP/OC (IN %) 1 C G - V A K SOFTWARE & EXPORTS LTD. 20.54% 2 I C R A TECHNO ANALYTICS LTD. 17.10% 3 LARSEN &O TOUBRO INFOTECH LTD. 26.06% 4 MINDTREE LTD. (SEG) 18.19% 5 PERSISTENT SYSTEMS LTD. (SEG) 28.27% 6 R S SOFTWARE (INDIA) LTD. 17.41% 7 TECH MAHINDRA LTD. (SEGMENTAL) 18.72% AVERAGE 20.90% IT(TP)A NO.2614/BANG/2017 PAGE 3 OF 6 5. THE TPO GAVE DEDUCTION TOWARDS WORKING CAPITAL A DJUSTMENT TO THE TUNE OF 0.42%. HOWEVER, INSTEAD OF DEDUCTIN G THE ABOVE SAID ADJUSTMENT FROM 20.90%, HE ADDED THE SAME TO IT. A CCORDINGLY HE PROPOSED TRANSFER PRICING ADJUSTMENT OF RS.114.75 L AKHS. THE AO COMPLETED THE ASSESSMENT BY ADDING THE ABOVE SAID A MOUNT TO THE TOTAL INCOME OF THE ASSESSEE. 6. THE ASSESSEE PREFERRED APPEAL BEFORE LD CIT(A ), BUT COULD NOT SUCCEED. HENCE THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 7. THE LD A.R SUBMITTED THAT THE ASSESSEE IS SEE KING EXCLUSION OF FOLLOWING FIVE COMPANIES ON VARIOUS CRITERIA. HOWE VER, THEY SHALL BE EXCLUDED, IF THE FILTER OF LARGE TURNOVER ALONE I S APPLIED, SINCE THESE COMPANIES DO NOT FALL IN THE BRACKET OF 1 CRORE TO 200 CRORES AS PER DUN AND BRADSTREETS ANALYSIS, WHEREIN IT HAS BEEN OPINED THAT THE GROUPING OF COMPANIES HAVING TURNOVER OF RS.1 CRORE TO RS.200 CRORES AS COMPARABLE WITH EACH OTHER WAS PROPER. H E SUBMITTED THAT THE ASSESSEES TURNOVER FOR THIS YEAR WAS ONLY RS.32.12 CRORES. HOWEVER THE TURNOVER OF FOLLOWING COMPANIES WAS MOR E THAN RS.200 CRORES:- NAME OF COMPARABLE COMPANY TURNOVER A) LARSEN & TOUBRO INFOTECH LIMITED 3609.32 CRORES B) PERSISTENT SYSTEMS LTD 996.75 CRORES C) MIND TREE LTD 1640.81 CRORES IT(TP)A NO.2614/BANG/2017 PAGE 4 OF 6 D) R S SOFTWARE (INDIA) LTD 293.05 CRORES E) TECH MAHINDRA LTD 5595.70 CRORES ACCORDINGLY, THE LD A.R SUBMITTED THAT THE ABOVE SA ID FIVE COMPANIES MAY BE DIRECTED TO BE EXCLUDED. 8. THE LD D.R, HOWEVER, SUPPORTED THE ORDERS PAS SED BY LD CIT(A). 9. WE HEARD THE PARTIES AND PERUSED THE RECORD. IN THE CASE OF GENISYS INTEGRATING SYSTEMS (INDIA) P LTD VS. DCIT (ITA NO.1231/BANG/2010), THE CO-ORDINATE BENCH OF TRIBUN AL HAS RELIED UPON THE OPINION EXPRESSED BY DUN AND BRADSTREET TH AT THE GROUPING OF COMPANIES HAVING TURNOVER OF RS.1.00 CR ORE TO RS.200 CRORES AS COMPARABLE WITH EACH OTHER WAS HELD TO BE PROPER. SINCE CERTAIN DECISIONS WERE RENDERED BY OTHER CO-ORDINAT E BENCHES FIXING DIFFERENT CRITERIA, THE CO-ORDINATE BENCH CONSIDERE D THE DIVERGENT VIEWS EXPRESSED BY VARIOUS BENCHES IN THE CASE OF A UTODESK INDIA (P) LTD VS. DCIT (2018)(96 TAXMANN.COM 263) AND EXP RESSED THE VIEW THAT THE LD CIT(A) WAS RIGHT ON THE ISSUE OF A PPLICATION OF TURNOVER FILTER BY FOLLOWING THE RATIO LAID DOWN IN THE CASE OF GENISYS INTEGRATING SYSTEMS (INDIA) P LTD (SUPRA). 10. IN THE INSTANT CASE, THE ASSESSEE SEEKS EXCL USION OF ABOVE SAID FIVE COMPANIES BY APPLYING TURNOVER FILTER AS PER T HE RATIO LAID DOWN IN THE CASE OF GENISYS INTEGRATING SYSTEMS (INDIA) P LTD (SUPRA). IT(TP)A NO.2614/BANG/2017 PAGE 5 OF 6 SINCE THE PLEA OF THE ASSESSEE IS COVERED BY THE DE CISION OF CO- ORDINATE BENCH, WE MODIFY THE ORDER PASSED BY LD CI T(A) AND DIRECT THE AO TO EXCLUDE ABOVE SAID FIVE COMPARABLE COMPAN IES. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH SEPTEMBER, 2019. SD/ - (BEENA PILLAI) JUDICIAL MEMBER SD/ - (B.R BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED, 4 TH SEPTEMBER, 2019. / VMS / COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE. IT(TP)A NO.2614/BANG/2017 PAGE 6 OF 6 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR.P.S .. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE.. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. DICTATION NOTE ENCLOSED . 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER .