DCIT (International Taxation), New Delhi V. M/s. Synopsys (India) Pvt. Ltd., Noida

ITA 3192/DEL/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6235 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 19-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIDHI SHARMA
• Keywords: Transfer pricing; International transaction

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI I-2 B ENCH, NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND MS. SUCHITRA KAMBLE, JUDICIAL M EMBER ITA NO. 3192/DEL/2017 [A.Y 2011-12] THE DY .C.I.T VS. M/S SYNOPSYS [INDIA] PVT LTD CIRCLE -3 (1)(2) [SINCE VIRAGE LOGIC INTERNATIONA L INTERNATIONAL TAXATION INDIA BRANCH OFFICE NOW ME RGED NEW DELHI WITH SYNOPSYS [INDIA] PVT. LTD BASEMENT & GROUND FLOOR, A 36, SECTOR 64, NOIDA PAN: AABCS 8847 D (APPLICANT) ( RESPONDENT) ASSESSEE BY : SHRI ANUBHAV RASTOGI, ADV DEPARTMENT BY : SHRI NIDHI SHARMA , SR. DR DATE OF HEARING : 09.10.2019 DATE OF PRONOUNCEMENT : 11.10.2019 ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, THIS APPEAL BY THE REVENUE IS PREFERRED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX [APPEALS] - 44, NEW DELH I DATED 02.11.2016 PERTAINING TO ASSESSMENT YEAR 2011-12. 2 2. THE SOLITARY GRIEVANCE OF THE REVENUE IS THAT TH E LD. CIT(A) ERRED IN EXCLUDING INFOSYS TECHNOLOGIES LTD FROM THE FINA L LIST OF COMPARABLES. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE, PREVIOUSLY KNOWN AS VIRAGE LOGIC INTERNATIONAL IN DIA OFFICE IS OPERATING IN INDIA WITH THE PERMISSION OF THE RBI A S 100% EXPORT ORIENTED UNIT AND IS REGISTERED WITH SOFTWARE TECHN OLOGY PARK. THE ASSESSEE SPECIFICALLY FOCUSES ON DEVELOPMENT OF ELE CTRONIC DESIGN AUTOMATION, EDA IN VIEW OF MEMORY COMPLIER, MIGRATI ON OF MEMORY COMPILERS ACROSS TECHNOLOGIES AND FOUNDRIES, DESIGN AND DEVELOPMENT OF NEXT GENERATION MEMORY COMPILERS, AP PLICATION OF ENGINEERING AND INTEGRATION SUPPORT, SOFTWARE ENGIN EERING AND SUPPORT. 4. THE INTERNATIONAL TRANSACTIONS DURING THE YEAR A RE AS UNDER: NATURE OF TRANSACTION VALUE (IN INR) METHOD APPLIED PROVISION OF SOFTWARE DEVELOPMENT SERVICES 20,38,69,045 TNMM RECHARGES TO GROUP COMPANIES 19,92,113 CUP REIMBURSEMENT OF EXPENSES 49,92,298 CUP 3 5. THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRAN SACTIONS REPRESENTING SOFTWARE DEVELOPMENT SERVICES PROVIDED TO THE ASSOCIATED ENTERPRISES IS DETERMINED BY APPLYING TR ANSACTIONAL NET MARGIN METHOD AS THE MOST APPROPRIATE METHOD BEING THE OPERATING PROFIT TO TOTAL COST RATIO TAKEN AS THE PROFIT LEVE L INDICATOR [PLI]. ACCORDINGLY, THE ASSESSEE ARRIVED AT THE PLI OF THE COMPANY AT 7.03% ON COST, WHEREAS THE AVERAGE PLI OF THE COMPARABLES IS ARRIVED AT 12.09%. 6. THE TPO, WHILE COMPLETING THE TRANSFER PRICING A SSESSMENT PROCEEDINGS, TOOK 18 COMPARABLES WITH AVERAGE PLI O F 24.54% AS TABULATED AS UNDER: S. NO. NAME OF THE COMPANY WORKING CAPITAL ADJUSTED OP/OC (%) 1 ACROPETAL TECHNOLOGIES LTD (SEG.) 34.91 2 AKSHAY SOFTWARE TECHNOLOGIES LTD. 2.79 3 CELSTREAM TECHNOLOGIES LTD. 15.69 4 E - INFOCHIPS LTD. 55.57 5 EVOKE TECHNOLOGIES PVT. LTD. 9.21 6 E - ZEST SOLUTIONS LTD. 36.31 7 INFOSYS LIMITED 43.07 8 LARSEN AND TOUBRO INFOTECH LTD. 20.85 9 LGS GLOBAL LTD. 12.73 10 MINDTREE LTD. (SEG) 10.29 11 PERSISTENT SYSTEMS AND SOLUTIONS LTD. 21.95 12 PERSISTENT SYSTEMS LTD. 23.26 13 R S SOFTWARE INDIA LTD. 17.22 4 14 SANKHYA INFOTECH LTD. 26.20 15 SASKEN COMMUNICATIONS TECHNOLOGIES LTD. 25.73 16 TATA ELXSI LTD. 10.35 17 THIRDWARE SOLUTIONS LTD. 20.51 18 WIPRO TECHNOLOGY SERVICES LTD. 54.52 AVERAGE 24.54 7. FINALLY, THE ARMS LENGTH ADJUSTMENT U/S 92CA OF THE ACT WAS COMPUTED AS UNDER: PARTICULARS AMOUNT (INR) TOTAL COST RS.19,04,78,532/ - ARMS LENGTH PRICE AT A MARGIN OF 24.5% RS.23.72,21,963/ - PRICE RECEIVED RS.20,38,69,045/ - PROPOSED ADJUSTMENT U/S 92CA RS.3,33,52,918/ - 8. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) CONTESTING THE EXCLUSION OF COMPARABLES TAKEN BY TH E TPO. 9. BEFORE THE LD. CIT(A), IT WAS VEHEMENTLY ARGUED THAT INFOSYS TECHNOLOGIES LTD IS A SOFTWARE GIANT COMPANY AND HA S BEEN EXCLUDED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF AGIN ITY INDIA TECHNOLOGIES PVT LTD IN ITA NO. 1204/2011. RELYING ON THE DECISION OF THE HON'BLE HIGH COURT OF DELHI, THE LD. CIT(A), IN TER ALIA, EXCLUDED INFOSYS TECHNOLOGIES LTD FROM THE FINAL LIST OF COM PARABLES. 5 10. THE REVENUE IS AGGRIEVED BY THIS. 11. BEFORE US, THE LD. DR STRONGLY SUPPORTED THE FI NDINGS OF THE ASSESSING OFFICER. 12. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE BR OUGHT TO OUR NOTICE THE DECISION OF THE CO-ORDINATE BENCH IN ASS ESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09 IN ITA NO.7043/DEL/2014. 13. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF AGINITY IN DIA TECHNOLOGIES PVT LTD [SUPRA] WHICH HAS BEEN FOLLOWED BY THE CO-ORDIN ATE BENCH IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2008-09. TH E RELEVANT FINDINGS OF THE TRIBUNAL READ AS UNDER: 8.1. THE HON'BLE JURISDICTIONAL DELHI HIGH COURT D ISMISSED THE APPEAL OF THE REVENUE. LEARNED COUNSEL FOR THE ITA.NO.7043/DEL./2014 M/S. VIRAGE LOGIC INTERNA TIONAL INDIA BRANCH OFFICE, NOIDA, U.P. ASSESSEE ALSO FILE D COPIES OF VARIOUS DECISIONS OF ITAT, DELHI BENCH REFERRED TO ABOVE, IN WHICH, ALSO THE TRIBUNAL HAS EXCLUDED M/S. INFOSYS 6 TECHNOLOGY LTD., FROM COMPARABLES. CONSIDERING THE ABOVE DISCUSSION IN THE LIGHT OF EXPLANATION AND ANALYSIS PROVIDED BY THE ASSESSEE, WHICH HAVE NOT BEEN CONTROVERTED BY T HE REVENUE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A), IN DIRECTING TO EXCLUDE M/S. INFOSYS TECHNO LOGY LTD., FROM COMPARABLES. THERE IS NO MERIT IN THE DEPARTME NTAL APPEAL ON GROUND NO.2. THE SAME IS ACCORDINGLY DISM ISSED . 14. AS NO DISTINGUISHING DECISION HAS BEEN BROUGHT ON RECORD TO OUR NOTICE BY THE REVENUE, RESPECTFULLY FOLLOWING THE D ECISION OF THE CO- ORDINATE BENCH, WE DECLINE TO INTERFERE WITH THE FI NDINGS OF THE LD. CIT(A). GROUND RAISED BY THE REVENUE IS DISMISSED. 15. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO. 3192/DEL/2017 IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 11.10. 2019. SD/- SD/- [ SUCHITRA KAMBLE ] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 11 TH OCTOBER, 2019 VL/ 7 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P S/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER