William Hare (India) Private Ltd., CHENNAI V. DCIT, CHENNAI

ITA 318/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9251 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 03-03-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 05-02-2015
• Court: TRIBUNAL
• Department Lawyers: M M BHUSARI
• Assessee Lawyers: G GANESH BABU
• Keywords: Transfer pricing; Wholly owned subsidiary
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , ! ' ! # . $ , % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ ITA NO. 318/MDS/2015 / ASSESSMENT YEAR : 2009-10 M/S. WILLIAM HARE (INDIA) PVT. LTD., AKARS TECH PARK, NO.1, MANIKODI SRINIVASAN NAGAR MAIN ROAD EXTN., SEEVARAM, PERUNGUDI, CHENNAI 600 096. PAN AAACW 4483G APPELLANT) V. THE DEPUTY COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE-3(2), CHENNAI. RESPONDENT) / APPELLANT BY : SHRI G. GANESH BABU, CA / RESPONDENT BY : SHRI M.M. BHUSARI, CIT ! / DATE OF HEARING : 03.03.2016 '# ! / DATE OF PRONOUNCEMENT: 27.05.2016 ( / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE DEPUTY COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE- - - ITA 318/2015 2 3(2), CHENNAI DATED 14.1.2005, WHICH IS PASSED U/S. 143(3) R.W.S.144C(5) CONSEQUENT TO THE DIRECTION OF THE DR P DATED 27.11.2014 . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED ASSESSING OFFICER (AO) PURSUANT TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (DRP) ERRED IN MAKING UPWARD ADJUSTMENT IN THE ARMS LENGTH PRICE (ALP). 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE AO ERRED IN CONCLUDING THAT GENESYS INTERNATIONAL CORPORATION LIMITED (GENESYS) IS FUNCTIONALLY COMPARABLE ENTITY TO THAT OF THE APPELLANT FOR THE PURPOSE OF DETERMINING ARMS LENGTH PRICE (ALP). 3. FOR THESE AND OTHER GROUNDS AS MAY BE ADDUCED AT THE TIME OF HEARING IT IS PRAYED THAT TH E COMPARABLE SELECTED BY THE TPO GENESYS INERNATIONAL CORPORATION LIMITED MAY BE DROPPED AND ACCORDINGLY UPWARD ADJUSTMENT MADE IN THE ARMS LENGTH PRICE BY THE AO AS CONFIRMED BY THE DRP MAY BE DELETED. 3. THE FACTS OF THE CASE ARE THAT ON RECEIPT OF REF ERENCE U/S.92CA(1) OF THE ACT IN THE CASE OF M/S. WILLIAMS HARE INDIA PVT. LTD.(HEREINAFTER REFERRED TO AS THE ASS ESSEE) FROM ACIT, CO. CIR.III(3), CHENNAI ON 16.11.2001 FO R DETERMINATION OF ARMS LENGTH PRICE(ALP) WITH REFER ENCE TO ALL THE TRANSACTIONS REPORTED IN FORM NO.3CEB FILED BY THE - - ITA 318/2015 3 ASSESSEE FOR THE ASSESSMENT YEAR 2010-11 THE TPO PASSED THE ORDER U/S.92CA(3) OF THE ACT ON 31.12.20 13 PROPOSING ADJUSTMENT OF ` 2.27 CRORES. THE AO PASSED THE ORDER MAKING CERTAIN OTHER ADJUSTMENTS IN THE RETUR NED INCOME SUCH AS REDUCTION IN 10A DEDUCTION AND PASSE D DRAFT ASSESSMENT ORDER U/S.143(3) R.W.S.144C OF THE ACT AND THE SAME WAS SERVED ON THE ASSESSEE ON 18.2.201 4. AGGRIEVED BY THE ADJUSTMENTS MADE BY THE TPO AND TH E AO, THE ASSESSEE FILED AN APPLICATION BEFORE DRP, C HENNAI IN FORM 35-A ON 11.3.2014. 3.1 THE DRP OBSERVED THAT M/S. WILLIAMS HARE INDIA P. LTD. (WHIL) IS A WHOLLY OWNED SUBSIDIARY OF WILLIAM HARE GROUP, WHICH IS UKS LEADING STEEL FABRICATOR PROVI DING INTEGRATED DESIGN AND STRUCTURAL DETAILING SERVICES AND HAS PRESENCE IN MAJOR STRUCTURAL MARKET SECTORS, INCLUD ING OIL & GAS, LNG PETROCHEMICAL, PHARMACEUTICAL, POWER, NUCL EAR, CIVIL, COMMERCIAL, BRIDGES, RETAIL & LEISURE DEVELO PMENT AND HAS SUCCESSFULLY COMPLETED PROJECTS, ACROSS THE GLO BE. THE DRP HAS ALSO GIVEN CERTAIN DIRECTIONS TO THE AO TO DETERMINE THE INCOME. CONSEQUENT TO THE DIRECTIONS OF THE - - ITA 318/2015 4 DRP, THE AO DETERMINED THE INCOME OF THE ASSESSEE A S FOLLOWS : 4.1 COMPUTATION OF TOTAL INCOME AS PER THE NORMAL PROVISIONS OF THE ACT. INCOME FROM BUSINESS & PROFESSION PROFIT BEFORE DEDUCTION U/S.10A ` 1,00,02,729/- ADD: UPWARD ADJUSTMENT MADE BY TPO ` 2,34,53,058/- ` 3,34,55,787/- LESS:DEDUCTION U/S 10A AS RE-COMPUTED ` 99,80,118/- ` 2,34,75,669/- ======== 4. NOW, THE ASSESSEE IS CHALLENGING THE CONSIDERAT ION OF COMPARABLE VIZ., GENESYS INTERNATIONAL P. LTD. F OR DETERMINING THE ALP, THOUGH IT WAS FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEES CASE. 5. THE LD. AR SUBMITTED THAT THE FUNCTIONS OF THE GENESYS ARE DEVELOPING GEOGRAPHICAL INFORMATION SYS TEM (GIS) APPLICATIONS AND ARE NOT COMPARABLE WITH THAT OF THE ASSESSEE AND GENESYS HAS NOT UNDERTAKEN THE FUNCTIO N OF DRAWINGS AND DESIGNING. HE FURTHER SUBMITTED THAT THE TECHNICAL SKILL REQUIRED FOR EXECUTING THE FUNCTION S OF GENESYS AND THE ASSESSEE IS NOT THE SAME. ACCORDIN G TO - - ITA 318/2015 5 THE LD. AR, GENESYS HAS NOT PROVIDED ENGINEERING SE RVICES AS MENTIONED BY HIM IN THE ORDER AND THE SERVICES P ROVIDED BY GENESYS IN GIS AND ITS APPLICATIONS ARE NOT ENGI NEERING SERVICES, AS ASSUMED IN THE ORDER AND PROVIDING GEO SPATIAL SOLUTIONS IS NOT AN ENGINEERING SERVICE. THE LD. A R FURTHER SUBMITTED THAT 3D/2D MAPPING PREPARED BY GENESYS IS NOT SIMILAR TO 3D/2D FABRICATION DRAWING PROVIDED BY TH E ASSESSEE AND THE 3D/2D MAPPING PROVIDED BY GENESYS IS SATELLITE IMAGE OF THE EARTH AND BENEATH ON OR ABOV E THE SURFACE OF THE EARTH. FURTHER, HE SUBMITTED THAT N O DRWINGS/CAD/CAM IS PRODUCED BY GENESYS AND THE ARGUMENT BY TPO GENESYS WHICH IS OPERATING UNDER A DIFFERENT DOMAIN, GIS CAN BE COMPARED IF TRANSACTIO N NET MARGIN METHOD IS USED IRRESPECTIVE OF INCOMPARABLE FUNCTIONS IS NOT CORRECT. 6. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT TH IS ISSUE CAME FOR CONSIDERATION BEFORE THIS TRIBUNAL I N ASSESSEES OWN CASE IN ITA NO.596/MDS/2014 DATED 12.12.2014 AND ALSO MA NO.169/MDS/2014 DATED 16.1.2015 FOR THE EARLIER ASSESSMENT YEAR, WHEREIN IT WAS OBSERVED AS FOLLOWS: - - ITA 318/2015 6 7. NOW WE COME TO THE ASSESSEES SOLE ARGUMENT T HAT M/S GENESYS INTERNATIONAL IS NOT A FUNCTIONALLY SIMILAR ENTITY. THE ASSESSEES HOLDING COMPANY IS STATED TO BE A UK BAS ED LEADING STEEL FABRICATOR PROVIDING INTEGRATED DESIG N AND STRUCTURAL DETAILING SERVICES. THE TPO RECORDS THE ASSESSEE TO BE ENGAGED IN ENGINEERING SUPPORT AND DEVELOPMEN T SECTION PRODUCING FABRICATION DETAILS IN STEEL FRAM ES FOR MANUFACTURING. ITS DESIGN ENGINEERING SECTION DEVEL OPS CONNECTION PATTERNS FOR STEEL SECTION. THE TPO ALS O STATES IT TO BE PRODUCING MODELS, CONNECTION DESIGN AND DETAI LED DRAWINGS. THESE FACTS INDICATE THAT THE ASSESSEE OFFERS ENGINEERING AND STRUCTURAL DESIGNING SERVICES IN IT S ENGINEERING FIELD. AS AGAINST THIS, ANNEXURE 1 ATT ACHED WITH THE TPOS ORDER DEMONSTRATES THAT M/S GENESYS INTERNATIONALS CORE FUNCTIONS ARE BOTH ENGINEERIN G AS WELL AS GEOSPATIAL SERVICES. THE FORMER LIMB FURTHER SPECI FIES THE SERVICES TO BE AS UNDER: THE TEAM OF GENESYS HAS SIGNIFICANT EXPERIENCE MOS T MAJOR COMPUTER AIDED DESIGN PRODUCTS ON THE MARKET: PDS SMARTPLANT INTOOLS FRAMEWORKS CATIA EERACEWAY AUTOPLANT AUTOPIPE CADWORKS CADPIPE CAESAR PROSTEEL PLANTSPACE PROENGINEER AUTOCAD INSTRUMENTATION DESIGNIT MICROSTATION PDMS STAAD SERVICES AVAILABLE: 2D TO 3D CAD CONVERSION AND MIGRATION 3D MODEL DEVELOPMENT-PDS, PDMS, CATIA, AUTOPLANT, PLANTSPACE INSTRUMENTATION/ELECTRICAL DATABASE CONVERSION, MIG RATION, CLEAN- UP LEGACY DATA CONVERSION AND MIGRATION INTELLIGENT PIPING AND INSTRUMENTATION DIAGRAM (P&I D) PROCESS FLOW DIAGRAM (PFD) CREATION GENERAL ARRANGEMENTS, ISOMETRICS, ORTHOGONALS, EQUI PMENT 3D POINT CLOUD CONVERSION TO INTELLIGENT 3D MODELS AS-BUILDING AND MAINTENANCE ENGINEERING/DETAIL DRAFTING SERVICES CAD SOFTWARE TRAINING - - ITA 318/2015 7 CAD APPLICATION DEVELOPMENT CAD/SYSTEM CONSULTING 8. THE ASSESSEE FILES BEFORE US ANNUAL REPORT OF THIS ENTITY FOR 2008-09 STATING IT TO BE INVOLVED IN LAND BASE MAPPING AND IN GEOGRAPHICAL INFORMATION SYSTEMS. THIS COM PANY ALSO CLAIMS ITSELF TO BE CAPABLE IN GIS CONSULTING, 3D M APPING, NAVIGATION MAPS, LIDAR, PHOTOGRAMMETRY REMOTE SENSI NG SERVICES, UTILITY SERVICES, IMAGE PROCESSING, SURVE YING, BUSINESS GEOGRAPHICS & LOGISTICS, CADASTRAL MAPPING , CITY SCAPE AND TELECOMMUNICATIONS. THESE FACTS LEAD TO AN INFERENCE THAT THERE IS MUTUALLY CONTRADICTORY INFO RMATION IN THE PUBLIC DOMAIN PERTAINING TO THE SAID ENTITY. IN OTH ER WORDS, ITS FUNCTIONS IN ANNUAL REPORT AND PUBLIC DOMAIN DIFFER . FACED WITH THIS SITUATION, WE ARE OF THE VIEW THAT A REMAND OR DER SIMPLICITER WILL NOT MEET THE ENDS OF JUSTICE. THU S, IN THE LARGER OF INTEREST OF JUSTICE, WE DEEM IT APPROPRIATE THAT THE IMPUGNED PLI HAS TO BE DECIDED SOMEWHERE BETWEEN 20% AND 32.8% I.E @ 23%. THE ASSESSEES GROUNDS ARE PARTLY ACC EPTED. THE ASSESSING OFFICER IS DIRECTED TO PASS A CONSEQU ENTIAL ORDER COMPUTING UPWARD ADJUSTMENT ACCORDINGLY. IN VIEW OF THE ABOVE ORDER OF THIS TRIBUNAL, THE LD . DR SUBMITTED THAT THE ISSUE IN DISPUTE IS TO BE REMITT ED BACK TO THE FILE OF THE AO WITH SIMILAR DIRECTION. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED T HE MATERIAL ON RECORD. IN THIS CASE, THE AO ADJUSTED THE AMOUNT OF ` 2,34,53,058/- TO SALES FIGURE OF THE A.E. AND OUT OF THIS, THE ASSESSEE CHALLENGED THE ADJUSTMENT IN THE RESPECT OF GENESYS INTERNATIONAL CORPORATION. ACCO RDING TO THE LD. AR, THE FINANCIALS OF THIS COMPANY CANNOT B E TAKEN - - ITA 318/2015 8 AS COMPARABLE, AS THIS COMPANY IS FUNCTIONALLY DIFF ERENT FROM THE ASSESSEE COMPANY. THE LD. AR SUBMITTED TH AT IN THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESS EE ONLY ENGAGED IN SINGLE PRIMARY SEGMENT I.E. GIS BAS ED SERVICES AS IS EVIDENT FROM THE DISCLOSURE IN PROFI T AND LOSS ACCOUNT STATED IN PARA 12(A), WHICH READS AS FOLLOW S: 12.(A) THE COMPANY OPERATES ONLY IN SINGLE PRIMARY SEGMENT I.E. GIS BASED SERVICES FOR THE PURPOSE OF AS 17 SEGMENTAL REPORTING. 7.2 FURTHER, IT WAS STATED THAT AS PER PROFIT AND L OSS ACCOUNT, THE ENTIRE REVENUE FROM OPERATIONS OF ` 620,567,105/- IS ONLY FROM GIS SERVICES. GENESYS INTERNATIONAL CORPORATION IS ENGAGED IN DEVELOPING GEOGRAPHICAL INFORMATION SYSTEM (GIS) APPLICATIONS AND ALSO FOLLOWING FUNCTIONS: A) GIS CONSULTING CONSULTANCY SERVICES FOR NEEDS ASSESSMENT, SYSTEM REQUIREMENT, ANALYSIS AND DESIGN , GEOSPATIAL DATA SERVICES AND APPLICATION DEVELOPMEN T. B) NAVIGABLE MAPS HAS COMPLETED THE MOST ACCURATE AND COMPREHENSIVE NAVIGATIONAL MAP DATABASE FOR INDIA, ALSO RUNNING A GLOBAL PRODUCTION CENTER FOR DATA UPDAT ES / - - ITA 318/2015 9 ENHANCEMENTS FOR THE WORLD OVER. C) PHOTOGRAMMETRY / REMOTE SENSING SERVICES COMPL ETE RANGE OF PHOTOGRAMMETRIC SERVICES FOR MUNICIPAL MAP PING, UTILITIES MAPPING, ROAD AND HIGHWAY PLANNING, CADAS TRAL, MAPPING, CITY MODELLING, ETC. D) 3D MAPPING HAS UNDERTAKEN LARGE SCALE 3D BUILD INGS CONTENT FOR HUNDREDS OF CITIES AROUND THE WORLD. E) SURVEYING SUCCESSFULLY MANAGED ONE OF THE LARG EST MAPPING PROJECTS IN PRIVATE SECTOR IN INDIA. 7.3 THE ASSESSEE HAS ALSO DISCUSSED THE ECONOMIC VALUE OF THE FUNCTIONS OF GENESYS AS EXPLAINED IN THE ANN UAL REPORT. THE GENESYS HAS PERFORMED NO FUNCTION IN ENGINEERING, AS MENTIONED BY THE TPO. GENESYS FUNC TIONS ARE IN GIS AND ITS APPLICATIONS. IT HAS NOT MADE A NY STRUCTURAL DESIGN OR DRAWING IN 3D/2D AS STATED BY THE TPO. ITS SATELLITE IMAGES/MAPS CAN BE VIEWED IN 3-DIMENS ION AND 2DIMENSION. THESE IMAGES OF THE EARTH AND BENEATH ON OR ABOVE THE SURFACE OF THE EARTH ARE DIFFERENT FROM F ABRICATION DRAWINGS PRODUCED BY THE ASSESSEE. THE TPOS ASSUMPTION THAT GENESYS IS MAKING STRUCTURAL DRAWIN GS AND - - ITA 318/2015 10 DESIGN IS CONTRARY TO FACTS. PROVIDING GEOSPATIAL SOLUTIONS IS NOT AN ENGINEERING SERVICE AND NOWHERE GENESYS HAS CLAIMED IN ITS ANNUAL REPORT THAT IT IS AN ENGINEER ING COMPANY. THE ASSUMPTION OF TPO THAT GENESYS IS AN ENGINEERING COMPANY IS FACTUALLY WRONG. GEOSPATIAL INFORMATION HAS BEEN DEFINED AS INFORMATION RELATI NG TO THE LOCATION AND THE NAMES OF FEATURES BENEATH ON OR AB OVE THE SURFACE OF THE EARTH. THE DECISION RELIED ON BY T HE TPO ARE NOT APPLICABLE TO THE FACTS OF THIS CASE, AS TH E ISSUE BEFORE THE TPO IS WHETHER THE ASSESSEE AND GENESYS HAVE COMPARABLE FUNCTIONS OR NOT. THE ABOVE ASPECT HAS NOT BEEN ADDRESSED BY THE TPO. 7.4 ON THE OTHER HAND, THE ASSESSEE IS ENGAGED IN STRUCTURAL DESIGN AND DRAWING AND THE TECHNICAL SKI LL REQUIRED FOR EXECUTING THE FUNCTIONS OF GENESYS AND THE ASSESSEE IS NOT THE SAME. FURTHER, IT IS ALSO BROU GHT TO OUR NOTICE THAT IN THE SUBSEQUENT ASSESSMENT YEAR, THE TPO HIMSELF EXCLUDED THE GENEYS FROM COMPARABLES. BEIN G SO, IN OUR OPINION, IT IS APPROPRIATE TO REMIT THIS ISS UE BACK TO THE FILE OF THE AO TO DECIDE THE A.L.P. AFTER EXCLU DING THE - - ITA 318/2015 11 GENESYS INTERNATIONAL CORPORATION FROM COMPARABLES. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED ON 27 TH MAY, 2016 AT CHENNAI. SD/- SD/- ( $ % & ' ) ( ( ) . * +, ) -./012/3445/267 DUVVURU RL REDDY 7 ! 89 /ACCOUNTANT MEMBER : 89 /JUDICIAL MEMBER $: /CHENNAI, ;8 /DATED, THE 27 TH MAY, 2016. MPO* 8< =>?> /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. @7 /CIT(A) 4. @ /CIT 5. >AB C /DR 6. B,D /GF.