Amba Research (India) Private Limited, Bangalore V. DCIT, Bangalore

ITA 286/BANG/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8600 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 09-02-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 03-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction

Judgement Text

IT(TP)A.286/BANG/2016 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'B', BANGALORE BEFORE SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI. VIJAY PAL RAO, JUDICIAL MEMBER I.T(TP).A NO.286/BANG/2015 (ASSESSMENT YEAR : 2010-11) AMBA RESEARCH (INDIA) P. LTD, 7 TH FLOOR, ELIXIR CHANCERY BUILDING, MUNICIPAL DOOR NO.135/1-2, RESIDENCY ROAD, BANGALORE 560 025 .. APPELLANT PAN : AAECA9391H V. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE -1(1)(1), BANGALORE .. RESPONDENT ASSESSEE BY : SHRI. CHAVALI NARAYAN, CA REVENUE BY : MS. NEERA MALHOTRA, CIT HEARD ON : 09.02.2016 PRONOUNCED ON : 09.03.2016 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY ASSESSEE, DIRECTED AGAINST AN ASSESSMENT DONE BY THE AO ON 30.12.2014, PURSUANT TO DIRECTIONS OF THE DRP U/S.144C OF IT(TP)A.286/BANG/2016 PAGE - 2 THE INCOME-TAX ACT, 1961 (THE ACT IN SHORT), IT H AS ALTOGETHER RAISED 14 GROUNDS. 02. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IF HIS GRIEVANCES WITH REGARD TO REJECTION OF CERTAIN COMPARABLES CONSIDER ED BY THE TPO, APPEARING AS A PART OF ITS GROUND NO.6 IS CONSIDER ED, OTHER GROUNDS NEED NOT BE ADJUDICATED NOW. ACCORDINGLY WE ARE CONFINING O URSELVES TO GROUND RAISED BY ASSESSEE WITH REGARD TO CERTAIN COMPARABL ES CONSIDERED BY THE TPO ON WHICH IT IS AGGRIEVED. 03. LD. AR SUBMITTED THAT ASSESSEE WAS A 100% EXPOR T-ORIENTED UNIT (EOU IN SHORT) AND PROVIDING ITE SERVICES TO ITS HOLDING COMPANY IN BRITISH VIRGIN ISLANDS. AS PER THE LD. AR REVENUE FROM SUCH TRANSACTIONS CAME TO RS.52,47,44,085/-. LD. AR SUBMITTED THAT A SSESSEE IN THE TP DOCUMENTATION HAD ADOPTED TNMM FOR JUSTIFYING THE P RICE OF ITS INTERNATIONAL TRANSACTIONS AND CONSIDERED NINE COMP ARABLE COMPANIES FOR THIS PURPOSE, BASED ON AN ANALYSIS DONE ON PROWESS AND CAPITALINE DATA BASE. AS PER THE LD. AR, TPO HAD ON THE OTHER HAND APPLIED FILTERS LIKE RPT, INSIGNIFICANT ITES SEGMENT, ABSENCE OF DATA IN PUBLIC DOMAIN, ETC, AND ARRIVED AT A LIST OF TEN COMPARABLES AS HEREUND ER : IT(TP)A.286/BANG/2016 PAGE - 3 04. LD. AR SUBMITTED THAT TPO HAD ALLOWED WORKING C APITAL ADJUSTMENT OF 0.23% AND A FINAL ADJUSTMENT OF RS.54,46,46,045/ -, AS GIVEN HEREUNDER WAS RECOMMENDED : IT(TP)A.286/BANG/2016 PAGE - 4 05. ASSESSEE AS PER THE LD. AR, MOVED THE DRP AGAIN ST THE ABOVE RECOMMENDATIONS OF THE TPO. AS PER THE LD. AR, DR P HAD CONSIDERED THE ARGUMENTS OF THE ASSESSEE AND DIRECTED EXCLUSION OF ACROPETAL TECHNOLOGIES LTD (SEG), E-CLERX SERVICES LTD, ICRA ONLINE LTD (SEG), INFOSYS BPO LTD AND SUNDARAM BUSINESS SERVICES LTD, FROM THE LIST OF ELEVEN COMPARABLES. HOWEVER, ACCORDING TO HIM, DRP DID NOT ACCEPT THE ASSESSEES CONTENTIONS IN SO FAR AS IT RELATED TO A CCENTIA TECHNOLOGIES LTD. AS PER THE LD. AR THOUGH ACCENTIA TECHNOLOGIES LTD WAS A PART OF ASSESSEES OWN LIST OF COMPARABLES IN THE TP STUDY, IT HAD BEFORE THE TPO OBJECTED AND SOUGHT EXCLUSION. AS PER THE LD. AR A SSESSEE HAD RELIED ON VARIOUS DECISIONS OF THIS TRIBUNAL IN SUPPORT. HOW EVER, THIS WAS NOT CONSIDERED BY THE TPO. LD. AR POINTED OUT THAT SIM ILAR EXCLUSION WAS SOUGHT BEFORE DRP ALSO, BUT WITH NO RESULT. AS PER THE LD. AR, AO HAD THEREAFTER CONCLUDED THE ASSESSMENT CONSIDERING M/S . ACCENTIA TECHNOLOGIES AS A GOOD COMPARABLE. 06. LD. AR RELYING ON THE DECISION OF COORDINATE B ENCH IN THE CASE OF M/S. NOVO NORDISK INDIA P. LTD V. DCIT [IT(TP)A NO. 146/BANG/2015, DT.30.07.2015], SUBMITTED THAT IN THE SAID CASE ALS O ACCENTIA TECHNOLOGIES LTD WAS CONSIDERED AS A COMPARABLE UNDER ITES SEGME NT. AS PER THE LD. IT(TP)A.286/BANG/2016 PAGE - 5 AR ASSESSMENT YEAR CONCERNED WAS ALSO THE VERY SAME AND THE SEGMENT BEINGCONSIDERED BY THE TRIBUNAL WAS ITES. PLACING RELIANCE ON PAPER BOOK PAGE 109 TO 159, WHERE A COPY OF THE DECISION IN NO VO NORDISK INDIA (SUPRA), WAS PLACED, LD. AR SUBMITTED THAT ACCENTIA TECHNOLOGIES LTD, WAS DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLE S IN THE ITES SEGMENT, IN THE SAID CASE. 07. PER CONTRA, LD. DR SUBMITTED THAT A CHANGE IN T HE LIST OF COMPARABLES WOULD COMPLETELY AFFECT THE MATRIX OF THE STUDY UND ER TNMM AND THEREFORE LOWER AUTHORITIES SHOULD BE GIVEN A FREE HAND TO MAKE A FRESH SEARCH. 08. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. NO DOUBT ACCENTIA TECHNOLOGIES LTD, FORMED A PART OF THE LIST OF COMPARABLES CONSIDERED BY THE ASSESSEE IN ITS TP STUDY. HOWEVE R ASSESSEE HAD OBJECTED TO ITS INCLUSION CITING FUNCTIONAL DISSIMILARITY BE FORE THE AO AS WELL AS THE DRP. QUESTION REGARDING COMPARABILITY OF ACCENTIA TECHNOLOGIES IN THE ITE SEGMENT FOR A. Y. 2010-11 HAD COME UP BEFORE TH IS TRIBUNAL IN THE CASE OF NOVO NORDISK INDIA P. LTD (SUPRA). IT WAS HELD AS UNDER AT PARAS 31 AND 32 OF THE ORDER DT.30.07.2015 : IT(TP)A.286/BANG/2016 PAGE - 6 31. WE DEAL WITH THE COMPARABLE COMPANIES WHICH THE ASSESSEE SEEKS EXCLUSION. 1. ACCENTIA TECHNOLOGY LTD., 2. IN FOSYS BPO LTD. THE COMPARABILITY OF THESE COMPANY WITH A ITES COMP ANY WAS CONSIDERED BY THIS TRIBUNAL IN THE CASE OF PARAXEL INTERNATIONAL (INDIA) PVT. LTD. (SUPRA) AND THE TRIBUNAL HELD AS FOLLOWS ON THE COMPARABILITY OF THE AFORESAID COMPANIES WITH A COM PANY PROVIDING ITES IN THE FOLLOWING MANNER:- 10. IN GROUNDS NO.4 TO 6, THE ASSESSEE HAS CHALLEN GED THE COMPARABLES SELECTED BY THE TPO FOR THE PURPOSE OF TP ANALYSIS AND AS SUBMITTED BY THE LEARNED COUNSEL OR THE ASSE SSEE, THE ASSESSEE IS OBJECTING TO THE SELECTION OF ONLY THE FOLLOWING FIVE COMPARABLES, OUT OF THE TWELVE COMPANIES SELECTED A S COMPARABLES- SL. NO. COMPANY NAME 1. ACCENTIA TECHNOLOGIES LIMITED 2. COSMIC GLOBAL LTD. 3. ECLERX SERVICES LTD. 4. GENESYS INTERNATIONAL LTD. 5. INFOSYS B P O LTD. 11. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES O N THE ISSUE OF INCLUSION/EXCLUSION OF THE ABOVE FIVE COMPANIES AS COMPARABLES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD IN CLUDING THE VARIOUS DECISIONS OF THE COORDINATE BENCHES OF THE TRIBUNAL CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE. ACCENTIA TECHNOLOGIES LIMITED 12. AS REGARDS THE SELECTION OF ACCENTIA TECHNOLOGI ES LIMITED AS COMPARABLE, THE LEARNED COUNSEL FOR THE ASSESSEE HA S RELIED ON THE DECISIONS OF THIS TRIBUNAL IN THE CASES OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. V/S. ADDL./DY. COMMISSION ER OF INCOME- IT(TP)A.286/BANG/2016 PAGE - 7 TAX, CIRCLE 1(2), HYDERABAD AND VICE VERSA (ITA NO. 124 AND 170/HYD/2014 DATED 31.7.2014); EXCELLENCE DATA RESE ARCH PVT. LTD., HYDERABAD V/S. ITO WARD 2(1), HYDERABAD (ITA NO.159/HYD/2014 DATED 31.7.2014); AND HYUNDAI MOTOR S INDIA ENGINEERING P. LTD., HYDERABAD V/S. DCIT, CIRCLE 2( 2), HYDERABAD (ITA NHO.255/HYD/2014 DATED 31.7.2014), WHEREIN M/S . ACCENTIA TECHNOLOGIES LIMITED(SEG) WAS EXCLUDED BY THE TRIBU NAL FROM THE LIST OF COMPARABLES ON THE GROUND THAT IT WAS A CAS E OF MERGERS AND ACQUISITION, AND THE COMPANY WAS ALSO FOUND TO BE F UNCTIONALLY DIFFERENT. THE RELEVANT OBSERVATIONS OF THE TRIBUNA L AS RECORDED IN PARA 19.2 OF THE ORDER PASSED IN THE CASE OF EXCELL ENCE DATA RESEARCH PVT. LTD., HYDERABAD (SUPRA), BEING RELEVA NT IN THIS CASE, ARE REPRODUCED BELOW- 19.2 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND NOTICED THAT THIS COMPANY OPERATES IN A DIFFERENT BUSINESS STRATEGY OF ACQUIRING COMPANIES FOR INORGANIC GROWTH AS ITS STR ATEGY. IN EARLIER YEARS ON THE REASON OF ACQUISITION OF VARIO US COMPANIES, BEING AN EXTRAORDINARY EVENT WHICH HAD A N IMPACT ON THE PROFIT, THIS COMPANY WAS EXCLUDED. AS SUBMITTED BY THE LEARNED COUNSEL, THIS YEAR ALSO, T HE ACQUISITION OF SOME COMPANIES BY THAT COMPANY MAY H AVE IMPACT ON THE PROFIT. CONSIDERING THE PROFIT MARGIN S OF THE COMPANY AND INSUFFICIENT SEGMENTAL DATA, WE ARE OF IT(TP)A NO.146/BANG/2015 PAGE 42 OF 52 THE OPINION THAT THI S COMPANY CANNOT BE SELECTED AS A COMPARABLE. MOREOVE R, THIS IS ALSO NOT A COMPARABLE IN THE CASE OF M/S. MERCER CONSULTING (INDIA) P. LTD. (SUPRA), WHICH INDICATES THAT THE TPO THEREIN HAS EXCLUDED IT AT THE OUTSET. IN VIEW OF THIS, WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS CO MPARABLE, FROM THE LIST OF COMPARABLES SELECTED. 13. AS POIN TED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE, THERE WAS ACQ UISITION OF A COMPANY BY M/S. ACCENTIA TECHNOLOGIES LIMITED DUR ING THE RELEVANT YEAR, AND THE SAID COMPANY, THEREFORE, CAN NOT BE CONSIDERED AS COMPARABLE DUE TO THIS EXTRAORDINARY EVENT WHICH OCCURRED IN THE RELEVANT YEAR AS RIGHTLY HELD BY THE TRIBUNAL INTER ALIA IN THE CASE OF EXCELLENCE DATA RESEARCH P. LTD. (SUPRA). ALTHOUGH THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SOUGHT TO CONTEND THAT THE ACQUI SITION OF A IT(TP)A.286/BANG/2016 PAGE - 8 COMPANY BY M/S. ACCENTIA TECHNOLOGIES LTD. TOOK PLA CE AT THE FAG END OF THE YEAR UNDER CONSIDERATION, THE LE ARNED COUNSEL FOR THE ASSESSEE HAS POINTED OUT THAT THE P ROCESS OF ACQUISITION HAD STARTED ON 15.5.2008 ITSELF, I.E. I N THE EARLIER PART OF THE YEAR UNDER CONSIDERATION. WE, THEREFORE , FOLLOW THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUN AL IN THE CASE OF EXCELLENCE DATA RESEARCH SERVICES PVT. LTD. (SUPRA) AND DIRECT THE AO/TPO TO EXCLUDE THE ACCENTIA TECHN OLOGIES LIMITED FROM THE LIST OF COMPARABLES. .. INFOSYS BPO 20. AS REGARDS SELECTION OF INFOSYS BPO AS A COMPAR ABLE COMPANY, THE LEARNED COUNSEL FOR THE ASSESSEE HAS C ONTENDED THAT THE SAID COMPANY CANNOT BE TAKEN AS COMPARABLE BECAUSE OF ITS UNCOMPARABLE SIZE OF OPERATIONS. HE HAS CONTENDED THAT THE TURNOVER OF THE SAID COMPANY WAS MANY TIMES HIGHER THAN THAT OF THE ASSESSEE DURING THE Y EAR UNDER CONSIDERATION. ALTHOUGH THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS CONTENDED THAT THE SIZE OF OPERA TIONS DOES NOT MATTER AS FAR AS SELECTION OF COMPARABLES IS CO NCERNED ESPECIALLY IN THE SECTOR OF IT ENABLED SERVICES, IT IS OBSERVED THAT SIMILAR ISSUE HAS BEEN DECIDED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V/S. AGNITY TECHNOLOG IES PVT. LTD. (219 TAXMAN 26) HOLDING THAT HUGE TURNOVER COM PANIES LIKE INFOSYS AND WIPRO CANNOT BE CONSIDERED AS COMP ARABLES WITH SMALLER COMPANIES LIKE THE ASSESSEE IN THE PRE SENT CASE. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF AGNITY TECHNOLOGIES P. LTD. (S UPRA), WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE INFOSYS BPO FROM THE LIST OF COMPARABLES. 32. AS FAR AS ACCENTIA TECHNOLOGY LTD., IS CONCERNE D, EVEN DURING THE PREVIOUS YEAR RELEVANT TO AY 2010-11, THERE WAS AMALGAMATION OF ASCENT INFOSERVE PRIVATE LIMITED WI TH ACCENTIA TECHNOLOGY LTD., AND CONSEQUENT THERETO THE ASSETS AND LIABILITIES AND ACCUMULATED RESERVES AND THE FINANCIAL RESULTS FOR THE YEAR IT(TP)A.286/BANG/2016 PAGE - 9 ENDED 31ST MARCH, 2010, OF THE AMALGAMATING COMPANY WERE INCORPORATED IN THE AMGALAMATED COMPANY. AS FAR AS INFOSYS BPO LTD., IS CONCERNED, THE OBSERVATIONS MADE BY THE TR IBUNAL IN THE DECISION REFERRED IN THE EARLIER PARAGRAPH WILL HOL D GOOD FOR THE PRESENT AY 2010-11 ALSO. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL REFERRED TO ABOVE, WE DIRECT THAT THE AFOR ESAID 2 COMPANIES BE EXCLUDED FROM THE LIST OF COMPARABLE C OMPANIES FOR THE PURPOSE OF COMPUTING ARITHMETIC MEAN FOR COMPAR ABILITY PURPOSE. THE TPO IS DIRECTED TO GIVE EFFECT ACCORDI NGLY. EVEN AFTER EXCLUSION OF ACCENTIA TECHNOLOGIES LTD, ALONG WITH THE EXCLUSION OF FOUR COMPARABLE COMPANIES DIRECTED BY DRP, THERE WILL BE FOUR COMPANIES LEFT IN THE LIST OF COMPARABLES WHIC H, IN OUR OPINION, CANNOT BE CONSIDERED AS TOO SMALL A SAMPLE FOR AN EFFECTIV E TP STUDY. IN THE CIRCUMSTANCES, WE DIRECT EXCLUSION OF ACCENTIA TECH NOLOGIES LTD ALSO FROM THE LIST OF COMPARABLES. ORDERED ACCORDINGLY. 09. BEFORE PARTING WITH, WE NOTE THAT ASSESSEE HAS APART FROM THE GROUND RELATING TO TRANSFER PRICING ALSO RAISED A GROUND R ELATING TO MAT CREDIT U/S.115JAA OF THE ACT, AND CERTAIN CONSEQUENTIAL GR OUNDS WHICH WERE NOT SERIOUSLY ARGUED BY THE LD. AR. IT(TP)A.286/BANG/2016 PAGE - 10 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATE D AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9TH DAY OF MA RCH, 2016. SD/- SD/- (VIJAY PAL RAO) (ABRA HAM P GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER MCN COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR