Appeal details
Counselvise Citation
[2020] 111 COUNSELVISE.COM (IT) 4341 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 3 month(s) 9 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
26-02-2020
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
A
Next Hearing Date
24-02-2020
Assessment Year
misc
Appeal Filed On
16-11-2018
Judgement Text
ITA NO. 3086 (B)/201 8 1 IN THE INCOME TAX APPELLATE TRIBUNAL B ENGALURU BENCHES : A , B ENGALURU BEFORE SHRI P.K.KEDIA, ACCOUNTANT MEMBER AND SMT.BEENA PILLAI, JUDIC I AL MEMBER IT (TP) A NO. 3086(BANG)/2018 (ASSESSMENT YEAR : 2014 - 15 ) M/S JDA SOFTWARE PRIVATE LTD., TOWER A, MANTRI COMMERCIO, NEXT TO SAKRA WORLD HOSPITAL, OUTER RING ROAD, BELLANDUR, BANGALORE - 560 103 PAN NO. AA ACI7334Q APPELLANT VS THE DEPUTY COMMISSIONER OF INCOME T AX , CIRCLE - 4( 1)( 1 ), BMTC BUILDING, 2 ND FLOOR, KORAMAN GALA, BANGALORE - 560 095 RESPONDENT APPELLANT BY : SHRI T. SURYANARAYANA, ADVOCATE REVENUE BY : MS. NEERA M ALHOTRA, CIT - DR DATE OF HEARING : 24 - 0 2 - 20 20 DATE OF PRONOUNCEMENT : 26 - 02 - 2020 O R D E R PER PRA DIP KUMAR KEDIA : A M THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE FINAL ASSESSMENT ORDER PASSED BY ASSESSING OFFICER DATED 17 - 09 - 2018 IN PURSUANCE OF THE DIRECTIONS ISSUED BY THE DISPUTE RESOLUTION PANEL (DRP) DATED 30 - 07 - 2018 RELATING TO ASSESSMENT YEAR 2014 - 15. ITA NO. 3086 (B)/201 8 2 2. THE SUBSTANTIVE GROUNDS OF APPEAL RAISED BY THE ASSESSEE RE PRODUCED HEREUNDER: THE GROUNDS STATED HEREUNDER ARE INDEPENDENT OF, AND WITHOUT PREJUDICE TO, ONE ANOTHER. THE APPELLANT SUBMITS AS UNDER: 1 S ASSESSMENT AND REFERENCE TO LD. TRANSFER PRICING OFFICER ARE BAD IN LAW A) THE FINAL ORDER ISSUED BY THE DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE 4(1)(1) ['DCIT' OR 'LD. AO'], IS BAD ON FACTS AND IN LAW. THE LEARNED LD. AO / LEARNED DEPUTY COMMISSIONER OF INCOME - TAX (TRANSFER PRICING) CIRCLE 1(3)(2)[ID. TPO'], ERRED IN LAW AND ON FACTS IN MAKING AN ADDITION TO THE TOTAL INCOM E OF THE APPELLANT ON ACCOUNT OF ADJUSTMENT TO THE ARM'S LENGTH PRICE WITH RESPECT TO SOFTWARE DEVELOPMENT SUPPORT AND RELATED SERVICES ('IT SERVICES'). B) THE HON'BLE DISPUTE RESOLUTION PANEL PDRP'1 GROSSLY ERRED IN LAW AND ON FACTS IN NOT DEALING WITH THE OBJECTIONS RAISED BY THE APPELLANT IN RELATION TO FUNCTIONALITY OF COMPANIES SELECTED BY THE TPO IN THE ORDER ISSUED UNDER SECTION 92CA OF THE ACT. C) THE AO / TPO ERRE D IN LAW AND ON FACTS AS HE FAILED TO ES TABLISH THAT THE APPELLANT SHIF T ED PROFITS OUTSIDE INDIA. 2 DETERMINATION OF ARM'S LENGTH PRICE / ERRONEOUS DATA USED BY THE LD. TPO A) THE LD. AO / LD. TPO GROSSLY ERRED ON FACTS AND IN LAW IN REJECTING THE FILTERS AND SEA PROCESS ADOPTED BY THE APPELLANT IN THE TRANSFER PRICING STUDY WITHOUT CONSIDERING THE APPELLANT'S FACTS. FURTHER, THE LD. AO/ LD. TPO ALSO ERRED ON FACTS AND IN LAW BY CONDUCTING A FRESH BENCHMARKING ANALYSIS IN RESPECT OF CAPTIVE IT SERVI CES PROVIDED BY THE APPELLANT AND WRONGLY COMPARING THE APPELLANT'S ACTIVITIES WITH COMPANIES OPERATING AS FULL - FLEDGED ENTREPRENEURS WITHOUT CONSIDERING THE DIFFERENCES IN FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED BY THE APPELLANT VIS - - VIS C OMPARABLE COMPANIES. THE LD. PANEL ERRED IN UPHOLDING THE ACTIONS OF THE LD. AO/ LD. TPO. ITA NO. 3086 (B)/201 8 3 B) THE LD. AO / ID. TPO ERRED IN LAW IN APPLYING ARBITRARY FILTERS AS CRITERION FOR REJECTION OF COMPANIES IDENTIFIED BY THE APPELLANT IN THE TRANSFER PRICING STUDY SUCH AS (I) COMPANIES WHOSE DATA FOR FINANCIAL YEAR ('FY') 2013 - 14 WAS NOT AVAILABLE (II) COMPANIES HAVING RELATED PARTY TRANSACTIONS GREATER THAN 25% OF THE SALES (III) COMPANIES WITH DIFFERENT FINANCIAL YEAR ENDING (I.E., OTHER THAN 31 MARCH 2014) AND (IV) C OMPANIES HAVING PERSISTENT LOSSES. THE LD. PANEL ERRED IN UPHOLDING THE ACTIONS OF THE LD. AO/ LD. TPO. C) THE LD. AO / LD. TPO ERRED IN LAW IN APPLYING AN ARBITRARY FILTER TO REJECT COMPANIES HAVING RELATED PARTY TRANSACTIONS GREATER THAN 25% OF SALES. FURTH ER, THE HON'BLE DRP ALSO ERRED IN UPHOLDING THE RELATED PARTY TRANSACTION FILTER OF 25%, DISREGARDING THE APPELLANT'S GROUND FOR APPLICATION OF THE RELATED PARTY TRANSACTION FILTER AT A THRESHOLD OF 10% OR 15% OF SALES. THE LD. PANEL ERRED IN UPHOLDING THE ACTIONS OF THE LD. AO/ LD. TPO. D) THE LD. AO / LD. TPO / HON'BLE DRP ERRED ON FACTS AND IN LAW IN CONSIDERING INFOSYS LIMITED, LARSEN & TOUBRO INFOTECH LTD., MINDTREE LTD., PERSISTENT SYSTEMS LTD., R S SOFTWARE (INDIA) LIMITED, CIGNITI TECHNOLOGIES LIMITED, SQS INDIA BFSI LIMITED AND THIRDWARE SOLUTIONS LIMITED AS COMPARABLE TO THE CAPTIVE SOFTWARE DEVELOPMENT SERVICES FUNCTION RENDERED BY THE APPELLANT. THE LD. PANEL ERRED IN UPHOLDING THE ACTIONS OF THE I.D. AO/ LD. TPO. E) THE LD. AO/LD. TPO ALSO ERRED ON FA CTS AND IN LAW IN ARBITRARILY REJECTING COMPANIES WITH DIFFERENT YEAR ENDING (I.E. OTHER THAN 31 MARCH 2014). THE LD. AO / LD. TPO EXCLUDED R SYSTEMS INTERNATIONAL LTD AND HELIOS AND MATHESON INFORMATION TECHNOLOGY LTD. SELECTED BY THE APPELLANT BY THE APP LYING THE SAID FILTER. THE LD. PANEL ERRED IN UPHOLDING THE ACTIONS OF THE LD. AO/ LD. TPO. F) THE HON'BLE DRP HAS ERRONEOUSLY DIRECTED TO EXCLUDE AKSHAY SOFTWARE TECHNOLOGIES LTD., SASKEN COMMUNICATION TECHNOLOGIES LTD., WHICH ARE FUNCTIONALLY COMPARABLE COMPANY TO THE APPELLANT. THE LD. PANEL ERRED IN UPHOLDING THE ACTIONS OF THE LD. AO/ LD. TPO. G) THE HON'BLE DRP ALSO ERRED ON FACTS IN NOT ACCEPTING ALL THE CONTENTIONS OF THE APPELLANT AS REGARDS ERRONEOUS MARKUP ITA NO. 3086 (B)/201 8 4 COMPUTATION OF CERTAIN COMPANIES IDENTIF IED AS COMPARABLE BY THE LD. TPO. THE LD. PANEL ERRED IN UPHOLDING THE ACTIONS OF THE LD AO/LD. TPO. H) THE HON'BLE DRP ALSO ERRED ON FACTS IN NOT ACCEPTING DETERMINATION OF ARM'S LENGTH PRICE BY THE LD. TPO IN RELATION TO THE TRADE RECEIVABLES. THE LD. PANEL ERRED IN UPHOLDING THE ACTIONS OF THE LD. AO/ LD. TPO. ERRONEOUS DATA USED BY THE LD. AO / LD. TPO A) THE AO / TPO HAS ERRED IN LAW IN USING DATA, WHICH WAS NOT CONTEMPORANEOUS AND WHICH WAS NOT AVAILABLE IN THE PUBLIC DOMAIN AT THE TIME OF CONDUCTING TRANSFER PRICING STUDY BY THE APPELLANT. THE LD. PANEL ERRED IN UPHOLDING THE ACTIONS OF THE LD. AO/ LD. TPO. B) THE AO / TPO ERRED IN LAW AND ON FACTS IN DISREGARDING THE APPLICATION OF MULTIPLE - YEAR DATA WHILE COMPUTING THE MARGINS OF THE COMPARABLE COMPANIES. THE LD. PANEL ERRED IN UPHOLDING THE ACTIONS OF THE LD. AO/ LD. TPO. 4 NON - ALLOWANCE OF APPROPRIATE ADJUSTMENTS TO THE COMPARABLE COMPANIES, BY THE LD. TPO THE LD. AO/LD. TPO ERRED IN LAW AND ON FACTS IN NOT ALLOWING APPROPRIATE ADJUSTMENTS UNDER RULE 10B TO ACCOUNT FOR, INTER ALIA, DIFFERENCES IN (A) ACCOUNTING PRACTICES, (B) MARKETING EXPENDITURE, (C) RESEARCH AND D EVELOPMENT EXPENDITURE, (D) RISK PROFILE BETWEEN THE APPELLANT AND THE COMPARABLE COMPANIES. THE LD. PANEL ERRED IN UPHOLDING THE ACTIONS OF THE LD. AO/ LD. TPO. 5 VARIATION OF 3% FROM THE ARITHMETIC MEAN THE LD. AO/LD. TPO ERRED IN LAW IN NOT GRANTING THE BENEFITS OF PROVISO TO SECTION 92C(2) OF THE INCOME TAX ACT, 1961 (`ACT') AVAILABLE TO THE APPELLANT. THE LD. PANEL ERRED IN UPHOLDING THE ACTIONS OF THE LD. AO/ LD. TPO. 6 DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT IN AY 2012 - 13 THE HON'BLE DRP ERRED IN LAW IN NOT ADJUDICATING THE ADDITIONAL GROUND OF OBJECTION FILED BY THE APPELLANT IN RELATION DEDUCTION ITA NO. 3086 (B)/201 8 5 CLAIMED FOR PAYMENTS DISALLOWED UNDER SECTION 40(A)(I) OF THE ACT DURING AY 2012 - 13. 7 SHORT GRANT OF CREDIT IN RESPECT OF ADVANCE TAX AND TDS THE LD. AO HAS ERRED IN GRANTING SHORT CREDIT IN RESPECT OF TDS TO THE EXTENT OF INR 12,998. 8 INTEREST UNDER SECTION 234B OF THE ACT THE LD. AO HAS ERRED IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT OF INR 88,732,424. 9 INITIATION OF PENALTY PROCEEDINGS T HE LD. AO HAS ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. 10. RELIEF A) THE APPELLANT PRAYS THAT DIRECTIONS BE GIVEN TO GRANT ALL SUCH RELIEF ARISING FROM THE ABOVE GROUNDS AND ALSO ALL RELIEF CONSEQUENTIAL THERETO. B) THE APPELLANT CRAVES LEAVE TO ADD TO OR ALTER, BY DELETION, SUBSTITUTION OR OTHERWISE, THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR DURING THE HEARING OF THE APPEAL C) THE APPELLANT FURTHER PRAYS THAT THE ADJUSTMENT IN RELATION TO TRANSFER PRICING MATTERS MADE BY THE LD. AO/LD. TPO AND UPHELD BY THE HON'BLE DRP BE DELETED. 3. WHEN THE MATTER W A S CALLED FOR HEARING , THE LEARNED AR FOR THE ASSESSEE ADVERTED OUR ATTENTION TO THE APPLICATION DATED 08 - 01 - 2020 FROM THE ASSE S SEE WHEREBY GROUNDS OF APPEAL RELATING TO TRANSFER PRICING ISSUES PURSUANT TO SIGNING OF THE ADVANCE PRICING AGREEMENT.(APA) WAS SOUGHT TO BE WITHDRAWN . 4. GROUNDS OF APPEAL NO.1 - 5 ARE THUS DISMISSED AS WITHDRAWN. 5 . GROUND NO.6 CONCERN S DISALLOWANCE UNDER S. 40 (A)(I) OF THE ACT. IN THE COURSE OF HEARING , IT WAS POINTED OUT ON BEHALF OF THE ASSESSEE THAT CERTAIN EXPENSES WERE ITA NO. 3086 (B)/201 8 6 INCURRED TOWARDS PAYMENTS MADE TO A PARTY M/S HEXAWARE WHICH WERE COVERED WITHIN THE AMBIT OF S. 40(A)(I) OF THE ACT , AMONG OTHER ADJUSTMENT S MADE BY THE AO. T HE AMOUNT SO PAID TO HEXAWERE WAS THUS DISALLOWED BY THE AO IN THE ASSESSMENT YEAR 2012 - 13 ON THE GROUND THAT THE COMPANY FAILED IN ITS OBLIGATIONS TO DEDUCT APPROPRIATE TAX ON SUCH PAYMENTS BEFORE MAKING REMITTANC E. THE ISSUE HAS BEEN A G ITATED BEFORE THE APPELLATE AUTHORITY IN THE ASSESSMENT YEAR 2012 - 13 WITH REGARD TO DISALLOWANCE OF PAYMENT MADE . HOWEVER, IT IS CLAIMED THAT ON BEHALF OF THE ASSESSEE THAT IT HAS ULTIMATELY DEDUCTED WITHHOLDING TAX AND REMITTED APPLICABLE T AX ES ON PAYMENT OF RS.101,93,575/ - MADE TO M/S HEXAWARE ALONGWITH THE INTEREST ATTRIBUTABLE TO DELAY IN REMITTANCE OF TAXES TO THE GOVERNMENT OF INDIA DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2014 - 15. IT IS THUS CONTENTED ON BEHALF OF THE ASSESSEE THAT IN VIEW OF PROVISO TO SEC.40(A)(I) OF THE ACT , THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION IN THE YEAR OF PAYMENT OF TAX ON DISALLOWANCES CARRIED OUT IN THE EARLIER YEARS. IT WAS THUS CONTENDED THAT WHERE THE ASSESSEE HAS DEDUCTED AND PAID TAX IN THE PREVIOUS YEAR RELATING TO ASSESSMENT YEAR 2014 - 15 , THE EXPENSES DISALLOWED IN ASSESSMENT YEAR 2012 - 13 UNDER THE MAIN PROVISIONS OF SEC.40(A)(I) OF THE ACT IS REQUIRED TO BE ALLOWED IN THE ASSESSMENT YEAR 2014 - 15 ON ACTUAL PAYMENT BASIS. 6. IT WA S FURTHER POINTED OUT THAT THE PROCEEDINGS BEFORE THE APPROPRIATE AUTHORITY WOULD BE WITHDRA W N FOR CLAIM OF TAX IN ASSES S MENT YEAR 2012 - 13 WHERE THE DISALLOWANCE OF PAYMENT S MADE TO M/S HEXAWARE CARRIED OUT IN ASSESSMENT YEAR 2012 - 13 IS REVERSED I N ASSESSMENT YEAR 2014 - 1 5 ON PAYMENT BASIS. IT WAS FURTHER POINTED OUT THAT THE DRP HA S E RRED IN DENYING THE BENEFIT UNDER PROVISO TO SEC.40(A)(I) A S NOT APPEALABLE BEFORE IT. IT IS THUS CONTENDED ON BEHALF OF THE ASSESSEE THAT THE BENEFIT OF PROVISO TO SEC.40(A)(I) OF THE ACT SHOULD BE GRANTED TO THE ASSESSEE HAVING REGARD TO THE ACTUAL PAYMENT S OF WITHHOLDING TAXES DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2014 - 15 IN QUESTION. ITA NO. 3086 (B)/201 8 7 7 . WE HAVE CAREFU LLY CONSIDERED THE SUBMISSIONS MADE ON THE POINT AND ALSO PERUSED THE CASE RECORDS. WE AGREE WITH THE PROPOSITION MADE ON BEHALF OF THE ASSESSEE ON FIRST PRINCIPLES FOR REVER S AL OF DISALLOWANCE CARRIED OUT U/S 40(A)(I) OF THE ACT FOR THE ASSESSMENT YEAR 20 12 - 13 IN THE ASSESSMENT YEAR 2014 - 15 ON ACTUAL PAYMENT OF WITHH O LDING TAXES. T HE PROVISO TO SEC.40(A)(I) OF THE ACT ENABLES THE AO TO ALLOW DEDUCTION OF EXPENSES IN COMPUTING THE INCO M E OF THE PREVIOU S YEAR IN WHICH WITHHOLDING TAX HAVE BEEN ACTUALLY PAID BY THE DEDUCTOR. HENCE , HAVING ADJUDICATED THE ISSUE OF ALLOWABILITY OF EXPENSES CLAIMED IN THE YEAR OF DEDUCTION IN FAVOUR OF THE ASSES S EE ON FIRST PRINCIPLES, WE HOWEVER, CONSIDER IT AS JUST AND EXPEDIENT TO RESTO RE THE ISSUE BACK TO THE FILE OF THE AO FOR VERIFICATION OF ACTUAL PAYMENT S OF TDS AT APPLICABLE RATES ON MADE TO M/S HEXAWARE AS NOTED ABOVE. THE AO IS DIRECTED TO ALLOW THE DEDUCTION OF EXPENSES ON BEING SATISFIED THAT THE TAX HAS BEEN DEDUCTED AND PAID DURING THE PREVIOUS YEAR RELATING TO ASSESSMENT YEAR 204 - 15 TO W ARDS EXPENSES IN CONTROVERSY. IT SHALL BE OPEN TO THE ASSESSEE TO SUPPORT ITS CLAIM BEFORE THE AO IN THIS REGARD WITH PROOF OF PAYMENT OF TAXES IN THE LIGHT OF AFORESAID OBSERVATIONS. THE AS SESSEE SHALL ALSO FILE AN UNDERTAKING BEFORE THE AO FOR WITHDRAWAL OF CLAIM IN AY 2012 - 13 ON ITS ALLOWABILITY ON ACTUAL PAYMENT BASIS. 8 . IN THE RESULT, GROUND NO.6 OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 9 . GROUND N O .7 ALLEGING SHORT GRANT OF CREDIT ON TAXES PAID IS ALSO REMITTED BACK TO THE FILE OF AO FOR VERIFICATION AND DETERMINATION. GROUND NO.7 IS THEREFORE , ALLOWED FOR STATISTICAL PURPOSES. 9 . GROUND NO.8 & 9 ARE CONSEQUENTIAL AND DOES NOT CALL FOR ANY ADJUDICATION AT OUR END. ITA NO. 3086 (B)/201 8 8 1 0 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY A LL OWED . ORDER PRONOUNCED IN THE OPEN COURT ON 26 - 02 - 2020. SD/ - S D/ - (BEENA PILLAI) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: BENGALURU DATED: 26 - 02 - 2020 * AM COPY OF THE ORDER FORWARDED TO: 1.APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5. DR 6 .GUARD FILE BY ORDER ASST.REGISTRAR
Mehul