Appeal details
Counselvise Citation
[2018] 125 COUNSELVISE.COM (IT) 6551 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 3 month(s) 25 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
18-07-2018
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
A
Next Hearing Date
23-05-2018
Assessment Year
2010-2011
Appeal Filed On
23-03-2015
Judgement Text
ITA NO 291 AND CO NO 24 OF 2015 DST WOR LDWIDE SERVICES INDIA P LTD HYDERABAD. PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.291/HYD/2015 (ASSESSMENT YEAR: 2010-11) ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 17(1) HYDERABAD VS M/S. DST WORLDWIDE SERVICES INDIA PVT. LTD HYDERABAD PAN: AAACI7097L (APPELLANT) (RESPONDENT) C.O. NO24/HYD/2015 (ARISING OUT OF ITA NO.291/HYD/2015) A.Y 2010-11 M/S. DST WORLDWIDE SERVICES INDIA PVT. LTD, HYDERABAD PAN: AAACI7097L VS ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 17(1) HYDERABAD (CROSS OBJECTOR) (RESPONDENT) FOR REVENUE : SHRI J. SIRI KUMAR, DR FOR ASSESSEE: SHRI ABHIROOP BHAGRAV O R D E R PER SMT. P. MADHAVI DEVI, J.M. THESE ARE REVENUES APPEAL AS WELL AS THE CROSS OBJECTION OF THE ASSESSEE FOR THE A.Y 2010-11, AGAI NST THE FINAL ASSESSMENT ORDER PASSED BY THE ASSTT.CIT, CIRCLE 17 (1) HYDERABAD, DATED 21.01.2015 U/S 143(3) R.W.S. 144C OF THE I.T. ACT. DATE OF HEARING: 23.05 . 201 8 DATE OF PRONOUNCEMENT: 18.07.2018 ITA NO 291 AND CO NO 24 OF 2015 DST WOR LDWIDE SERVICES INDIA P LTD HYDERABAD. PAGE 2 OF 7 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY, ENGAGED IN THE BUSINESS OF PROVIDING SOFTWARE DEVEL OPMENT AND IT ENABLED SERVICES, FILED ITS E-RETURN FOR THE A.Y 20 10-11 ON 07.10.2010 DECLARING TOTAL INCOME OF RS.1,67,92,830 . SINCE THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTION S WITH ITS AE, THE DETERMINATION OF THE ALP OF THE SAID TRANSACTIO N WAS REFERRED TO THE TPO U/S 92CA(3) OF THE ACT. THE TPO VIDE ORD ER DATED 21.01.2014 PROPOSED AN ADJUSTMENT OF RS.1,62,05,938 . IN ACCORDANCE WITH THE ORDER OF THE TPO, A DRAFT ASSES SMENT ORDER WAS PROPOSED AGAINST WHICH THE ASSESSEE FILED ITS O BJECTIONS BEFORE THE DRP. THE DRP GRANTED PARTIAL RELIEF TO T HE ASSESSEE AND AGAINST THE RELIEF GRANTED BY THE DRP, THE REVENUE IS IN APPEAL BEFORE US BY RAISING THE FOLLOWING GROUNDS OF APPEA L: 1. THE ORDER OF ORP IS ERRONEOUS BOTH IN LAW AND F ACTS OF THE CASE. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ORP IS JUSTIFIED IN REJECTING M/S INFOSYS BPO LTD AND M/S TCS-E-SERVE LIMITED AS COMPARABLE COMPANIES ON THE GROUND OF EXCEPTIONALLY LARGE SCALE OF OPERATIO NS AND THEREBY IGNORING THE FACT THAT HIGH OR LOW TURNOVER DO NOT INFLUENCE THE MARGINS OF THE COMPARABLES? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE ORP IS JUSTIFIED IN DELETING M/S E-CLERX SERVICES L TD REGARDED AS KPO BY ITAT IGNORING THE FACT THAT SUCH A MINUTE COMPARISON REDUCES TRANSFER PRICING STUDY TO COMPARISON BETWEEN REPLICAS OF COMPANIES? 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE ORP IS RIGHT IN LAW IN DIRECTING THE ASSESSING OFFI CER TO TAKE EXPORT TURNOVER OF RUPEES 63,40,59,883/INSTEAD OF 65,97,10,413/-TAKEN BY THE ASSESSING OFFICER TO CAL CULATE BENEFIT UNDER SECTION 10A. 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE ORP IS RIGHT IN LAW IN DIRECTING THE ASSESSING OFFI CER TO TAKE RS. 21,68,353/- AS COMMUNICATION EXPENSES IGNO RING THE FACT THAT THE ASSESSING OFFICER HAD RIGHTLY TAK EN THE AMOUNT OF RS. 39,03,927/- TOWARDS COMMUNICATION EXPENSES DEBITED UNDER THE HEAD 'INTERNATION PRIVAT ELY LEASED CIRCUIT AND INTERNET CHARGES. I ITA NO 291 AND CO NO 24 OF 2015 DST WOR LDWIDE SERVICES INDIA P LTD HYDERABAD. PAGE 3 OF 7 6. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WHET HER HON'BLE ORP IS CORRECT IN LAW TO EXCLUDE COMMUNICAT ION CHARGES BOTH FROM EXPORT TURNOVER AS WELL AS TOTAL TURNOVER THOUGH SUCH AN ADJUSTMENT TO THE TOTAL TURNOVER IS NOT CONTEMPLATED IN THE PROVISIONS LAID DOWN UNDER SECT ION 10 A OF THE INCOME TAX ACT, 1961. 7. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME O F HEARING THE APPEAL. 3. GROUNDS 1 & 7 ARE GENERAL IN NATURE AND NEED NO ADJUDICATION. 4. AS REGARDS GROUNDS 2 AND 3 ARE CONCERNED, IT IS THE CASE OF THE REVENUE THAT THE DRP SHOULD NOT HAVE RE JECTED M/S. INFOSYS BPO, M/S. TCS-E-SERVE LTD AS COMPARABLE COM PANIES ON THE GROUND OF EXCEPTIONALLY LARGE SCALE OF OPERATIO N AND SHOULD NOT HAVE REJECTED M/S. E-CLERX SERVICES LTD, BY REG ARDING IT AS KPO. 5. THE LEARNED DR SUPPORTED THE ORDERS OF THE AO AN D THE TPO, WHILE THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDERS OF THE DRP AND ALSO PLACED RELIANCE UPON THE DECISIONS OF VARIOUS BENCHES OF THE ITAT, WHEREIN THE ABOVE THRE E COMPANIES WERE CONSIDERED AND DIRECTED TO BE EXCLUDED ON THE ABOVE GROUNDS. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE TPO, AFTER MAKING THE F AR ANALYSIS, HAS HELD THE ASSESSEE TO BE AN ITES PROVIDER. AFTER AGGREGATING THE TRANSACTIONS, THE OPERATING REVENUE WAS ARRIVED AT RS.66,44,89,983, WHEREAS, AS SEEN FROM THE FINANCIA LS OF INFOSYS ITA NO 291 AND CO NO 24 OF 2015 DST WOR LDWIDE SERVICES INDIA P LTD HYDERABAD. PAGE 4 OF 7 BPO, ITS TOTAL OPERATING REVENUE WAS RS.1130/- CROR ES AND ODD AND THE OPERATING REVENUE OF TCS E-SERVE LTD WAS RS .1405/- CRORES WHICH IS MORE THAN TEN TIMES OF THE TOTAL RE VENUE OF THE ASSESSEE. THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. AGNITY INDIA TECHNOLOGIES PVT. LTD IN ITA NO.1204 O F 2011 DATED 10 TH JULY 2013, HAS HELD THAT INFOSYS BPO IS ENGAGED IN HIGH END SERVICES AND THEREFORE, IT IS FUNCTIONALLY DISSIMIL AR AND ITS BRAND UNDISPUTEDLY IS A HUGE BRAND AND DEFINITELY RESULTS OF THAT BRAND GO TO OPENING HIGHER PROFIT TO THE SAID COMPANY. VA RIOUS COORDINATE BENCHES OF THE TRIBUNAL HAVE FOLLOWED TH IS DECISION TO HOLD THAT INFOSYS BPO AND SIMILARLY, TCS E-SERVE IN TERNATIONAL LTD ARE NOT COMPARABLE TO ITES COMPANIES LIKE THE A SSESSEE. FURTHER, M/S. E-CLEREX SERVICES (P) LTD HAS ALSO BE EN CONSIDERED AS A KPO COMPANY, BY FOLLOWING THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF RAMPGREEN SOLUTIONS (P) L TD VS. CIT REPORTED IN (2015) 234 TAXMAN 573 (DEL.). WE FIND T HAT THE DRP HAS FOLLOWED VARIOUS DECISIONS OF THE ITAT TO HOLD THESE COMPANIES TO BE UNCOMPARABLE TO THE ASSESSEE COMPAN Y. SINCE THE CIT (A) HAS FOLLOWED THE PRECEDENTS ON THE ISSU E AND THE LEARNED DR HAS NOT BEEN ABLE TO POINT OUT ANY DECIS ION TO THE CONTRARY, WE DO NOT SEE ANY REASON TO INTERFERE WIT H THE DIRECTIONS OF THE DRP. ACCORDINGLY GROUNDS 2 & 3 ARE REJECTED. 7. AS FAR AS GROUNDS 4 TO 6 ARE CONCERNED, WE FIND THAT THESE GROUNDS ARE NOW COVERED IN FAVOUR OF THE ASSE SSEE BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F CIT VS. HCL TECHNOLOGIES LTD IN CIVIL APPEAL NO. 8535 AND OTHER S OF 2013, DATED 24 TH APRIL, 2018 WHEREIN IT WAS HAS HELD THAT WHILE COMPUTING THE DEDUCTION U/S 10A OF THE ACT, IF ANY EXPENDITURE IS ITA NO 291 AND CO NO 24 OF 2015 DST WOR LDWIDE SERVICES INDIA P LTD HYDERABAD. PAGE 5 OF 7 TO BE EXCLUDED FROM THE EXPORT TURNOVER, THEN THE S AME IS TO BE EXCLUDED FROM THE TOTAL TURNOVER AS WELL. RESPECTFU LLY FOLLOWING THE SAME, AND AS THE DECISION OF THE LEARNED DRP, I S IN CONSONANCE WITH THE SAID DECISION, WE DO NOT SEE AN Y REASON TO INTERFERE WITH THE ORDER OF THE AO ON THIS ISSUE AS WELL. 8. IN THE RESULT, REVENUES APPEAL IS DISMISSED C.O. NO.24/HYD/2015. 9. THE ASSESSEE HAS RAISED THE FOLLOWING OBJECTIONS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. AO HAS ERRED IN MAKING AN ADDIT ION OF RS.42,68,103 TO THE PROVISION OF INFORMATION TECHNOLOGY ENABLED SERVICES AND IN DOING SO, THE LD . AO ERRED IN NOT GRANTING THE BENEFIT OF THE PROVISO TO SECTION 92C(2) THE ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. DRP AND LD. AO ERRED INCLUDING COMPANIES NAMELY TCS E-SERVE INTERNATIONAL LTD. AND ACCENTIA TECHNOLOGIES LTD. IN THE COMPARABILITY ANA LYSIS WHICH ARE DIFFERENT FROM THE CROSS-OBJECTOR IN FUNC TIONS, ASSET BASE AND RISK PROFILE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. DRP AND LD. AO ERRED IN NOT GRANTIN G ADJUSTMENT ON ACCOUNT OF RISK DIFFERENTIAL BETWEEN THE CROSS-OBJECTOR AND THE COMPARABLE COMPANIES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. DRP AND LD. AO ERRED IN EXCLUDING T HE TELECOMMUNICATION EXPENSES, BEING 'DATA COM- CONNECTIVITY' EXPENSES AMOUNTING TO RS 39,03,927 WHILE COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. 5. WITHOUT PREJUDICE TO ABOVE, EVEN ASSUMING BUT NO T ADMITTING THAT THE ABOVE TELECOMMUNICATION EXPENSES INCURRED IN FOREIGN CURRENCY ARE TO BE REDUCED FROM EXPORT TURNOVER AND TOTAL TURNOVER, THE LD. AO ERRE D IN CONSIDERING A HIGHER AMOUNT FOR THE TELECOMMUNICATI ON EXPENSES AS RS.39,03,927 WHEREAS THE EXPENSES PERTAINING TO THE TELECOMMUNICATION EXPENSES WERE RS.21,68,353. 10. AS REGARDS THE GROUND NO.1, THE ASSESSEE IS AGG RIEVED BECAUSE THE AO HAS NOT GIVEN THE BENEFIT OF THE PRO VISO TO SUB- ITA NO 291 AND CO NO 24 OF 2015 DST WOR LDWIDE SERVICES INDIA P LTD HYDERABAD. PAGE 6 OF 7 SECTION (2) OF SECTION 92C OF THE ACT. WE FIND THAT THE AO IS BOUND TO GIVE THE BENEFIT OF VARIATION (+_)5% MARGIN UNDE R THE PROVISO TO SUB-SECTION (2) OF SECTION 92C OF THE ACT AND IF TH E ASSESSEES MARGIN IS WITHIN (+_)5% OF THE AVERAGE MARGIN OF TH E COMPARABLES, THEN NO ADJUSTMENT IS TO BE MADE. THE AO IS DIRECTE D ACCORDINGLY. 11. AS REGARDS GROUND NOS. 2 & 3, WE FIND THAT THE ASSESSEE IS SEEKING EXCLUSION OF THESE TWO COMPANIE S ON THE GROUND OF FUNCTIONAL DISSIMILARITY. HOWEVER, BY EXC LUSION OF THREE COMPANIES BY THE DRP, WHICH IS CONFIRMED BY US IN T HE REVENUES APPEAL, THE ASSESSEES MARGIN FALLS WITHIN +_5% OF THE AVERAGE MARGIN OF THE COMPARABLES AND THE ADJUDICATION ABOU T THE COMPARABILITY OF THESE TWO COMPANIES AT THIS STAGE WILL ONLY RESULT IN AN ACADEMIC EXERCISE. THEREFORE, THE SAID GROUND S ARE NOT ADJUDICATED AT THIS STAGE AND ACCORDINGLY REJECTED. 12. AS REGARDS THE GROUNDS 4 & 5, WE FIND THAT IN T HE REVENUES APPEAL, WE HAVE ALREADY HELD THAT THE TELECOMMUNICATION CHARGES HAVE TO BE EXCLUDED FROM BOTH THE EXPORT AS WELL AS TOTAL TURNOVER. WE HOWEVER, DIREC T THE AO TO CONSIDER THE CORRECT FIGURE FOR SUCH EXCLUSION. THE REFORE, GROUNDS ARE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPO SES. 13. IN THE RESULT, REVENUES APPEAL IS DISMISSED, W HILE CROSS OBJECTIONS OF THE ASSESSEE ARE PARTLY ALLOWED . PRONOUNCED IN THE OPEN COURT ON 18 TH JULY, 2018. SD/- SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 18 TH JULY 2018. VINODAN/SPS ITA NO 291 AND CO NO 24 OF 2015 DST WOR LDWIDE SERVICES INDIA P LTD HYDERABAD. PAGE 7 OF 7 COPY TO: 1 ASSTT. CIT, CIRCLE 17(1), 6 TH FLOOR, B-BLOCK, IT TOWERS, AC GUARDS, HYDERABAD 2 M/S.DST WORLDWIDE SERVICES INDIA PVT LTD, 5 TH FLOOR, BLOCK-B, Q CITY, NANAKRAMGUDA, GACHIBOWLI, HYDERABAD 500032 3 TPO/ADDL.CIT (TP) HYDERABAD 500004 4 5 CIT (INTERNATIONAL TAXATION)IT TOWERS, 10-2-3, AC GUARDS, HYDERABAD 500004 CIT-5, HYDERABAD 6 THE DR, ITAT HYDERABAD 7 GUARD FILE BY ORDER
