M/s. Lubrizol Advanced Materials India Pvt.Ltd., Baroda V. The ACIT., Circle-1(2), Baroda

ITA 2898/AHD/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9732 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-12-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 26-09-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 27-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M P SINGH
• Assessee Lawyers: DHANESH BAJNA WITH PRATIK SHAH
• Keywords: Transfer pricing
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD I BENCH AHMEDABAD BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER, AND SHRI S. S. GODARA, JUDICIAL MEMBER. ITA NO. 2898/AHD/2012 (ASSESSMENT YEAR:2008-09) LUBRIZOL ADVANCED MATERIALS INDIA PRIVATE LIMITED (FORMERLY KNOWN AS INDIAMALT PRIVATE LIMITED) P.O. MANJUSAR, TAL. SAVLI, DISTT. BARODA, GUJARAT 391775 APPELLANT VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(2), BARODA - 390007 RESPONDENT PAN: AAACI4361B /BY ASSESSEE : SHRI DHANESH BAJNA WITH PRATIK SHAH, A.R. /BY REVENUE : SHRI M. P. SINGH, CIT D.R. /DATE OF HEARING : 26.09.2016 /DATE OF PRONOUNCEMENT : 26.12.2016 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2008-09 ARISES AGAINST THE ACIT, CIRCLE-1(2), BARODAS ASSESSMENT ORDER DATED 25.10.2012, PASSED IN FURTHERANCE TO THE DISPUTE RESOLUTION PANEL DRP H EREAFTER, AHMEDABADS ITA NO. 2898/AHD/2012 ( LUBRIZOL ADVANCED MATERIALS INDIA PVT. LTD. VS. ACIT) A.Y. 2008-09 - 2 - DIRECTIONS DATED 25.09.2012, IN PROCEEDINGS UNDER S ECTION 143(3) R.W.S. 144C(1) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. 2. WE COME TO ASSESSEES PLEADINGS. THE INSTANT CA SE FILE INDICATES THAT ITS SOLE SUBSTANTIVE GROUND PLEADS THAT THE TRANSFE R PRICING OFFICER (THE TPO) & THE ABOVE DRP HAVE ERRED IN MAKING TRANSFER PRICI NG ADJUSTMENT OF RS.73,43,657/- IN RESPECT OF ITS INTERNATIONAL TRAN SACTIONS OF PROVISION OF MARKETING SUPPORT SERVICES RENDERED TO ITS EPONYMOU S ASSOCIATE ENTERPRISES BASED IN EUROPE AND ASIA PACIFIC REGION TOTALING TO RS.7,73,62,467/-. 3. WE COME TO BASIC FACTS FIRST. THE ASSESSEE COMP ANY MANUFACTURES CASSIA AND GUAR GUM POWDER. IT PROVIDED ABOVE MARK ING SUPPORT SERVICES TO ITS ASSOCIATE ENTERPRISES STATED IN PRECEDING PARAG RAPH. IT HAD BENCHMARKED THE SAME AT THE RATE OF 14.18% AFTER SELECTING EIGH T COMPARABLES AND ADOPTING COST PLUS METHOD AS THE MOST APPROPRIATE METHOD. T HE TRANSFER PRICING OFFICER REJECTED ASSESSEES TRANSFER PRICING STUDY AND ITS COMPARABLES MAINLY ON THE GROUND THAT THE SAID ENTITIES DID NOT REVEAL DATA OF THE RELEVANT FINANCIAL YEAR ALONG WITH LACK OF EXPORT TURN OVER EXCEEDING 75% CRITERIA. HE WOULD THEREAFTER FINALIZE TOTAL SEVEN COMPARABLE EN TITIES NAMELY M/S. ACCCENTIA TECHNOLOGIES LTD., ACROPETAL TECHNOLOGIES LTD., ASIT C MEHTA FINANCIAL SERVICES LTD. AND SPANCO LTD. (ALL SEGMEN TAL) FOLLOWED BY M/S. CORAL HUBS LTD. (FORMERLY VISHAL INFORMATION TECHNO LOGIES LTD.), CROSSDOMAIN SOLUTIONS AND MOLDTEK TECHNOLOGIES HAVI NG AVERAGE PLI RATIO OF 36.16%. THE TRANSFER PRICING OFFICERS ORDER DA TED 28.10.2011 REJECTED ASSESSEES OBJECTIONS AND PROPOSED THE IMPUGNED ADJ USTMENTS. THE ASSESSING OFFICER THEN FRAMED DRAFT ASSESSMENT ON 0 9.12.2011 AS PER THE SAME. WE FIND THE AMOUNT INVOLVED IN THE ORIGINAL PROPOSAL ARISING FROM THE IMPUGNED ADJUSTMENT TO BE OF RS.1,56,06,649/-. ITA NO. 2898/AHD/2012 ( LUBRIZOL ADVANCED MATERIALS INDIA PVT. LTD. VS. ACIT) A.Y. 2008-09 - 3 - 4. THE ASSESSEE FILED ITS OBJECTIONS BEFORE THE DIS PUTE RESOLUTION PANEL INTER ALIA PLEADING THAT THE TPO HAD WRONGLY REJECT ED ITS TRANSFER PRICING STUDY REPORT BASED ON THE CONTEMPORANEOUS DATA AVAI LABLE AFTER REJECTING/ACCEPTING INAPPROPRIATE COMPARABLES RESUL TING IN THE IMPUGNED ADJUSTMENT. THIS PANEL UPHELD ASSESSING OFFICERS ACTION IN ITS ORDER DATED 25.09.2012 EXCEPT TO THE EXTENT THAT IT WOULD DIREC T THE ASSESSING OFFICER TO EXCLUDE M/S. MOLDTEK HAVING ABNORMAL RESULTS. THE ASSESSING OFFICER ACCORDINGLY FRAMED THE IMPUGNED ASSESSMENT RE-COMPU TING THE ABOVE TRANSFER PRICING ADJUSTMENT OF RS.73,43,657/- IN QU ESTION LEAVING THE ASSESSEE AGGRIEVED. 5. WE HAVE HEARD BOTH THE PARTIES. CASE FILE PERUS ED. THE ASSESSEES FIRST ARGUMENT IN THE COURSE OF HEARING IS THAT THE AUTHO RITIES BELOW HAVE ERRED IN REJECTING ITS TRANSFER PRICING STUDY THEREBY UNDERT AKING A FRESH SELECTION PROCESS OF COMPARABLES HAVING DATA OF THE RELEVANT FINANCIAL YEAR 2007-08. IT HOWEVER FAILS TO DISPUTE THAT ITS ORIGINAL COMPARAB LES WERE NOT BASED ON INTER ALIA SELECTION OF THE RELEVANT FINANCIAL YEAR 2007- 08 DATA FOLLOWED BY FULFILLMENT OF THE LATTER FILTER OF 75% EXPORT EARN INGS. THE SAME POSITION CONTINUES BEFORE US AS WELL SINCE THE ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE ITS CASE THAT THE ORIGINAL COMPARABLES HAD TO BE ACCEPTED SINCE SATISFYING THE RELEVANT PACIFIC FILTERS. ITS FIRST ARGUMENT IS ACCORDINGLY DECLINED. 6. THE ASSESSEES NEXT ARGUMENT SEEKS TO EXCLUDE M/ S. CORAL HUBS LTD. (FORMERLY VISHAL INFORMATION TECHNOLOGIES ), M/S. A CCENTIA TECHNOLOGIES LTD., M/S. ACROPETAL TECHNOLOGIES LTD. AND M/S. CRO SSDOMAIN SOLUTIONS. LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTS INCLU SION OF ALL OF THE ABOVE ENTITIES IN THE ARRAY OF COMPARABLES. ITA NO. 2898/AHD/2012 ( LUBRIZOL ADVANCED MATERIALS INDIA PVT. LTD. VS. ACIT) A.Y. 2008-09 - 4 - 7. WE HAVE GIVEN OUT THOUGHTFUL CONSIDERATION TO RI VAL CONTENTIONS. WE FIRST COME TO M/S. CORAL HUBS LTD., FORMERLY KNOWN AS M/S. VISHAL INFORMATION TECHNOLOGIES LTD. THERE DOES NOT APPEA R TO BE ANY DISPUTE THAT THE LOWER AUTHORITIES HAVE INCLUDED THIS ENTITY AS A COMPARABLE SOLELY BECAUSE OF THE VERY COURSE OF ACTION ADOPTED IN THE IMMEDIA TE PRECEDING ASSESSMENT YEAR 2007-08. LEARNED COUNSEL AT THIS STAGE FILED BEFORE US A COPY OF ITA NO.2811/AHD/2011 DECIDED ON 21.10.2015 IN ASSESSEE S CASE ITSELF FOR PRECEDING ASSESSMENT YEAR THAT M/S. VISHAL INFORMAT ION TECHNOLOGY HAD OUTSOURCED ITS INFORMATION TECHNOLOGY ENABLED SERVI CES TO THIRD PARTY VENDORS AND THEREFORE NOT TO BE TAKEN AS A VALID COMPARABLE . WE RELY ON THE VERY REASONING HEREIN AS WELL IN ABSENCE OF ANY DISTINCT ION ON FACTS BEING POINTED OUT AND DIRECT THE ASSESSING OFFICER TO EXCLUDE M/S . CORAL HUBS LTD. FROM THE ABOVE COMPARABLES AND FINALIZE AFRESH COMPUTATI ON. 8. WE NOW COME TO M/S. ACCENTIA TECHNOLIGIES LTD. LEARNED COUNSEL REPRESENTING ASSESSEE PLEADS THAT THE SAID ENTITY H AD SEEN MERGER OF TWO UNITS DURING THE RELEVANT FINANCIAL YEAR HAVING IMPACT ON ITS MARGINS. WE FIND THAT A CO-ORDINATE BENCH OF THIS TRIBUNAL IN SYMPHONY MA RKETING SOLUTIONS INDIA PVT. LTD. CASE ITA NO.1316/BANGLORE/2012 DECIDED ON 14.08.2013 EXCLUDES THIS ENTITY FOR THE IMPUGNED ASSESSMENT YEAR ITSELF ON THE GROUND THAT ABOVE EXTRAORDINARY EVENTS OF MERGER HAD AN IMPACT ON ITS MARGINS. WE NOTICE THAT VARIOUS OTHER CO-ORDINATE BENCHES HAVE ALSO ADOPTED THE VERY COURSE OF ACTION OF EXCLUDING THE SAID ENTITY FROM THE ARRAY OF COMP ARABLES WITH RESPECT TO IT ENABLED SERVICES. WE THUS DIRECT THE ASSESSING OFF ICER TO EXCLUDE M/S. ACCENTIA TECHNOLOGIES LTD. AS WELL FROM THE ARRAY O F COMPARABLES. 9. THE ASSESSEES NEXT ARGUMENT IS REGARDING INCLUS ION OF M/S. ACROPETAL TECHNOLOGIES LTD. WE FIND HEREIN AS WELL THAT THE ABOVE CO-ORDINATE BENCH ITA NO. 2898/AHD/2012 ( LUBRIZOL ADVANCED MATERIALS INDIA PVT. LTD. VS. ACIT) A.Y. 2008-09 - 5 - DECISION IN SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA) HOLDS THAT M/S. ACROPETAL TECHNOLOGIES LTD. IS ENGAGED IN PROV IDING HIGH END SERVICES OF ENGINEERING DESIGN WHICH ARE TOTALLY DIFFERENT F ROM IT ENABLED SERVICES. LD. DEPARTMENTAL REPRESENTATIVE FAILS TO REBUT THIS FACTUAL AND LEGAL POSITION. WE THUS DIRECT EXCLUSION OF THIS THIRD ENTITY AS WE LL FROM THE ARRAY OF COMPARABLES. 10. THIS LEAVES US WITH ASSESSEES ARGUMENTS CHALLE NGING INCLUSION OF M/S. CROSSDOMAIN SOLUTION LTD. IT SUBMITS HEREIN AS WEL L THAT THE SAID ENTITY IS ENGAGED IN PROVIDING HIGH END AND KPO SERVICES, DEV ELOPMENT OF PRODUCT SUITS AND IT ENABLED SERVICES AS PER THE CASE LAW O F SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA) WHICH IS NOT A VA LID COMPARABLE SINCE NOT HAVING ANY BIFURCATION AVAILABLE FOR SUCH VERTICAL SERVICES. IT IS EVIDENT TO US THAT HONBLE DELHI HIGH COURT IN RAMPGREEN SOLUTION S PVT. LTD. VS. CIT ITA NO.102/2015 DECIDED ON 10.08.2015 CONCLUDES THAT KP O BUSINESS ENTITIES ARE NOT VALID COMPARABLES TO BPO AND OTHER IT ENABLED S ERVICES. WE THUS DIRECT THE TRANSFER PRICING OFFICER TO UNDERTAKE CONSEQUEN TIAL EXERCISE RESTRICTING INCLUSION OF M/S. CROSSDOMAIN SOLUTIONS ONLY TO THE EXTENT OF ITS RESULT IN IT ENABLED SERVICES SEGMENT AS PER LAW. THE ASSESSEE SUCCEEDS IN ITS INSTANT ARGUMENT TO THIS EXTENT ONLY. 11. WE DRAW SUPPORT FROM OUR ABOVE DISCUSSION AND D IRECT THE TRANSFER PRICING OFFICER TO FINALIZE CONSEQUENTIAL COMPUTATI ON. LEARNED COUNSEL AT THIS STAGE SUBMITS THAT THE ASSESSEE IS ENTITLED FO R WORKING CAPITAL ADJUSTMENT AND 5% RELIEF IN THE NATURE OF TOLERANCE MARGIN. LD. DEPARTMENTAL REPRESENTATIVE STATES THAT THE REVENUE WOULD HAVE N O OBJECTION IF THESE TWO ISSUES ARE CONSIDERED AS PER LAW IN CONSEQUENTIAL C OMPUTATION. WE ITA NO. 2898/AHD/2012 ( LUBRIZOL ADVANCED MATERIALS INDIA PVT. LTD. VS. ACIT) A.Y. 2008-09 - 6 - APPRECIATE THIS FAIR STAND AND DIRECT THE TRANSFER PRICING OFFICER TO CONSIDER THESE TWO ASSESSEES CONCERNS AS PER LAW. 12. THIS ASSESSEES APPEAL IS PARTLY ALLOWED FOR ST ATISTICAL PURPOSES. [PRONOUNCED IN THE OPEN COURT ON THIS THE 26 TH DAY OF DECEMBER, 2016.] SD/- SD/- ( PRAMOD KUMAR ) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD: DATED 26/12/2016 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )*+ ,--. . /0 / DR, ITAT, AHMEDABAD 1 +23 / GUARD FILE. BY ORDER / . // . /0