Visual Graphics Computing Services India Private Limited, CHENNAI V. DCIT Corporate Circle 3(2), CHENNAI

ITA 3205/CHNY/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6037 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 27-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M SRINIVASA RAO
• Keywords: Earning of tax free income; Question of law
• Section: 143(3); 14A; 144C

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI ... , , $ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER /. I.T.A. NO. 3205/CHNY/2017 / ASSESSMENT YEAR : 2013-14 VISUAL GRAPHICS COMPUTING SERVICES (INDIA) PRIVATE LIMITED, 10 TH FLOOR, ZENITH, ASCENDAS - INTERNATIONAL TECH PARK, CSIR, TARAMANI LINK ROAD, CHENNAI 600 113. [PAN: AAACV 3342H] VS. DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 3(2), CHENNAI 600 034. ( / APPELLANT) ( / RESPONDENT) &' / APPELLANT BY : SHRI. NISHANT THAKKAR, ADVOCATE & MS. JASMIN A MALSADVALA, ADVOCATE *+&' / RESPONDENT BY : SHRI. M. SRINIVASA RAO, CIT ' /DATE OF HEARING : 20.11.2018 ' /DATE OF PRONOUNCEMENT : 01.01.2019 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER P ASSED BY THE DCIT, CORPORATE CIRCLE 3(2), CHENNAI ON THE DIR ECTIONS ISSUED BY THE DRP-2, BANGALORE U/S. 143(3) R.W. 144C IN F.NO. 273 /DRP-2-BNG/2016- 17 DATED 22.09.2017 FOR ASSESSMENT YEAR 2013-14. :-2-: ITA NO.3205/MDS/2017 2. VISUAL GRAPHICS COMPUTING SERVICES INDIA PRIVATE LIMITED (VGCS), THE ASSESSEE, INCORPORATED ON 16 JUNE 1997, IS A WH OLLY OWNED SUBSIDIARY OF MCKINSEY USA. IT IS A CAPTIVE SERVICE PROVIDER RENDERING INFORMATION TECHNOLOGY ENABLED SERVICES TO THE MCKI NSEY GROUP COMPANIES. VGCS OPERATES FROM ITS UNITS LOCATED AT CHENNAI AND TRIVANDRUM. ITS SERVICES TO MCKINSEY GROUP CAN BE B ROADLY CLASSIFIED AS FOLLOWS; VISUAL AID SERVICES (PREPARING POWER POINT PRESENTA TIONS) GLOBAL FINANCE AND ACCOUNTING SERVICES (FINANCE AND ACCOUNTING SERVICES) MCKINSEY GROUP: MCKINSEY & COMPANY, INC (MCKINSEY USA) IS A GLOBAL MANAGEMENT CONSULTANCY FIRM THAT FOCUSES ON SOLVING ISSUES OF CONCERN TO SENIOR MANAGEMENT. THEY ASSIST CLIENTS IN ADVIS ING SOLUTIONS FOR THEIR PROBLEMS WHICH COULD RANGE FROM MAJOR STRATEGIC TO OPERATIONAL ISSUES. VGCS IS A PART OF MCKINSEY GROUP. ITS EQUITY SHARE CAPITAL IS HELD BY MCKINSEY USA AND MCKINSEY INTERNATIONAL INC. ACCORD INGLY, MCKINSEY GROUP ENTITIES SHALL CONSTITUTE VGCSS AE BY VIRTUE OF COMMON CONTROL AND CAPITAL. 3. ON THE DRAFT ORDER PASSED BY THE TPO-3(2), CHENN AI U/S. 92CA(III) DATED 31.10.2016, WHEREIN, HE PROPOSED FOR AN UPWAR D ADJUSTMENT TO THE TUNE OF RS. 5,87,58,239/-, THE ASSESSEE FILED I TS OBJECTIONS BEFORE THE :-3-: ITA NO.3205/MDS/2017 DRP. THE HONBLE DRP VIDE F.NO. 273/DRP-2-BANG/16- 17 DATED 22.09.2017 HAS GIVEN ITS DIRECTIONS. THEREAFTER, T HE AO PASSED THE IMPUGNED ORDER AGAINST WHICH THE ASSESSEE FILED THI S APPEAL. THOUGH, THE ASSESSEE HAS TAKEN VARIOUS GROUNDS OF APPEAL, T HE LD. AR SUBMITTED THAT THE ADJUDICATION OF THE FOLLOWING ISSUES WOULD MEET THE ENDS OF JUSTICE AND ACCORDINGLY HE CANVASSED THE FOLLOWING ISSUES WHICH ARE DEALT AS UNDER. 4. THE FIRST ISSUE IS REJECTION OF COMPARABLES VIZ. , R SYSTEMS INTERNATIONAL LIMITED AND CALIBER BUSINESS POINT SO LUTIONS ON THE BASIS THAT THESE COMPANIES FOLLOWED THE DIFFERENT FINANCI AL YEAR ENDING AND IN THE CASE OF COMPARABLE INFOSYS BPO LTD., HAS SIGNI FICANTLY HIGH TURNOVER COMPARED TO THE ASSESSEE. THE AR SUBMITTED THAT IN ITS OWN CASE, THE ISSUE OF COMPARABLES FOLLOWING DIFFERENT ACCOUNTING YEAR CAME UP IN ASSESSMENT YEAR 2010-11. THIS HONBLE ITAT IN ITA NO. 971/MDS/2015 DATED 28.12.2017, FOLLOWING THE COORDINATE BENCH DE CISION IN THE CASE OF R R DONNELLEY INDIA OUTSOURCES (P) LTD VS DCIT (201 6) 75 TAXMANN.COM 306 (CHENNAI TRIB) HELD THAT: 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, THERE IS NO DISPUTE THAT RSIL IS FUNCTIONAL C OMPARABILITY TO THE ASSESSEES CASE. HOWEVER, THE ACCOUNTING YEAR ADOPTED BY THE RSIL IS DIFFERENT FROM THE ASSESSEES ACCOUNTING YEAR. RSIL IS ADOPTED 1ST JANUARY TO 31S T DECEMBER AS ACCOUNTING YEAR AS AGAINST THE ACCOUNTING YEAR ADOPTED BY THE ASSES SEE AS 1ST APRIL AND 31ST MARCH. HOWEVER, DATA FOR THE FINANCIAL YEAR COULD BE COMPI LED FROM THE AUDITED ACCOUNTS OF RSIL. HENCE, THE ASSESSEE IS DIRECTED TO FURNISHDAT A FOR THE FINANCIAL YEAR 2009-10 :-4-: ITA NO.3205/MDS/2017 (1ST APRIL AND 31ST MARCH) TO THE TPO, WHO AFTER DU E VERIFICATION SHALL CONSIDER THE SAME AS COMPARABLE TO THE ASSESSEES CASE SO AS TO DETERMINE THE ALP. THIS VIEW OF OURS IS FORTIFIED BY THE DECISION OF THE TRIBUNAL I N THE FOLLOWING CASES : (I) XCHANGING TECHNOLOGY SERVICES PVT. LTD. IN ITA NO.1222/DEL/2015 DATED 8.9.2015 (II) MERCER CONSULTING (INDIA) PVT. LTD. IN IA NO.9 66/DEL/2014 DATED 6.6.2014 (III) AMERIPRISE INDIA PVT. LTD. V. ACIT IN ITA NO. 2010/DEL/2014 DATED 14.8.2015 (IV) M/S. MAERSK GLOBAL SERVICE CENTRES (INDIA) PVT . LTD. V. DCIT IN ITA NO.2594/MUM/2014 DATED 16.1.2015 (V) AEGIS LTD. V. ACT IN ITA NO.1213/MUM/2014 DATED 27.7.2015 ACCORDINGLY, THIS GROUND IS ALLOWED. AND REMITTED BACK THE ISSUE TO THE AO ON SIMILAR DIRECTIONS. 4.1. WITH REGARD TO THE COMPARABLE INFOSYS BPO LTD. , THE LD. AR SUBMITTED THAT THE TURNOVER OF THE ASSESSEE IS 136 CRORES, WHILE THE TURNOVER OF INFOSYS BPO LTD., IS AT 1831 CRORES WHI CH IS 13.46 TIMES HIGHER THAN THE ASSESSEE AND SUBMITTED THAT IN ITS OWN CASE THIS ISSUE CAME BEFORE THIS TRIBUNAL IN ASSESSMENT YEAR 2008-0 9. THE ITAT IN ITS ORDER IN ITA NO. 2340/MDS/2012 DATED 10.02.2017 HEL D THAT THE TURNOVER OF M/S. INFOSYS BPO LTD., IN ASSESSMENT YEAR 2008-0 9 WAS 850 CRORES, WHILE THE ASSESSEES TURNOVER WAS 64.27 CRORES WHIC H WAS MORE THAN 10 TIMES THAT OF ASSESSEE. IT FURTHER HELD THAT M/S. INFOSYS BPO LTD WAS OPERATING AT A DIFFERENT LEVEL AND COULD NOT HAVE B EEN COMPARED WITH THE ASSESSEE. THEREFORE, THE HONBLE TRIBUNAL DIRECTED THE AO TO EXCLUDE M/S. INFOSYS BPO LTD. FROM THE LIST OF COMPARABLES. AGAINST THIS ORDER, THE REVENUE FILED AN APPEAL BEFORE THE JURISDICTION AL HIGH COURT IN TCA NO. 137/2018. INVITING OUR ATTENTION TO THE PORTIO N OF SUBSTANTIAL :-5-: ITA NO.3205/MDS/2017 QUESTION OF LAW RAISED FOR THE DECISION OF THE HON BLE HIGH COURT U/S. 260(A) IN THE MEMORANDUM OF APPEAL U/S. 260 OF THE INCOME TAX ACT, 1961 IN TCA NO. 137/2018, THE LD. AR SUBMITTED THAT VIDE GROUND NUMBER 4 THE REVENUE RAISED THE FOLLOWING QUESTION: 4. WHETHER THE TRIBUNAL WAS RIGHT IN NOT CONSIDERI NG THAT NO CORRELATION EXIST BETWEEN TURNOVER AND PROFITS? FURTHER, INVITING OUR ATTENTION TO THE SUBSTANTIAL QUESTION OF LAW ADMITTED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF TCA NO. 137/2018 DATED 03.04.2018 COMMUNICATED ON 10.04.2018, HE SUBMITTED THAT THE QUESTION RAISED BY THE REVENUE IS NOT FOUND PLACE I N THE SUBSTANTIAL QUESTION OF LAW FRAMED BY THE HONBLE JURISDICTIONA L HIGH COURT AND HENCE HE SUBMITTED THAT THIS ISSUE IS EITHER ACCEPT ED BY THE REVENUE OR THE JURISDICTIONAL HIGH COURT DID NOT ACCEPT SUCH P LEA OF THE REVENUE. THUS, THIS ISSUE ATTAINED FINALITY AND HENCE M/S. I NFOSYS BPO LTD SHOULD NOT BE TREATED AS COMPARABLE WITH THE ASSESSEE. 5. WE HEARD THE RIVAL SUBMISSIONS AND FIND MERIT IN THE SUBMISSIONS MADE BY THE LD. AR, SUPRA. FOLLOWING THE COORDINAT E BENCH DECISION, SUPRA, THE ISSUE ON THE COMPARABLE R SYSTEMS INTERN ATIONAL LTD AND CALIBER BUSINESS POINT SOLUTIONS LTD., ARE REMITTED BACK TO THE AO, ON SIMILAR DIRECTIONS ISSUED BY THIS TRIBUNAL, SUPRA. ON THE ABOVE FACTS AND CIRCUMSTANCES, WE DIRECT THE AO TO EXCLUDE M/S. INF OSYS BPO LTD. FROM THE LIST OF COMPARABLES. :-6-: ITA NO.3205/MDS/2017 6. THE NEXT ISSUES AS CANVASSED BY THE LD. AR ARE T HAT THE LD. TPO/AO/HONBLE DRP ERRED IN NOT MAKING SUITABLE ADJ USTMENTS TO ACCOUNT FOR DIFFERENCE IN THE WORKING CAPITAL POSIT ION OF THE ASSESSEE VIS- A-VIS THE COMPARABLE COMPANIES AND NOT MAKING SUITA BLE ADJUSTMENT TO ACCOUNT FOR DIFFERENCE IN THE RISK PROFILE OF THE A SSESSEE VIS-A-VIS THE COMPARABLE COMPANIES. 6.1. IN THIS REGARD, THE LD. AR INVITED OUT ATTENTI ON TO THIS TRIBUNAL DECISION IN ITS OWN CASE FOR ASSESSMENT YEAR 2010-1 1 & 2012-13 IN ITA NOS. 971/MDS/2015 DATED 28.12.2017 AND ITA NO. 2340 /MDS/2012 DATED 10.02.2017 FOR ASSESSMENT YEAR 2008-09, WHEREIN, TH ESE ISSUES ARE REMITTED BACK. 7. WE HEARD THE RIVAL CONTENTIONS AND GONE THROUGH THE ORDERS RELIED ON BY THE LD. AR. SINCE, BOTH THE ISSUES IN THE AS SESSEES CASE ARE REMITTED BACK TO THE AO IN THE EARLIER YEARS, THESE ISSUES ARE REMITTED BACK ON THE SAME LINES AND DIRECTIONS TO THE AO/TPO . 8. THE NEXT ISSUE CANVASSED BY THE LD. AR IS WITH R EGARD TO THE DISALLOWANCE MADE U/S. 14A R.W.R. 8D. IN THIS REGA RD, THE LD. AR SUBMITTED THAT THE ASSESSEE HAS NOT EARNED ANY EXEM PT INCOME AND AS PER JURISDICTIONAL HIGH COURT DECISIONS IN THE CASE S OF REDINGTON (INDIA) LTD VS ACIT (392 ITR 633) (MAD) AND CIT VS CHETTINA D LOGISTICS PVT. LTD., (248 TAXMAN 55) (MAD), NO DISALLOWANCE COULD BE MAD E 14A R.W.R. 8D. :-7-: ITA NO.3205/MDS/2017 9. WE HEARD THE RIVAL SUBMISSIONS. SINCE, THE FACT S ARE NOT CLEAR FROM THE ASSESSMENT ORDER OR FROM THE ORDER OF THE DRP A S TO WHETHER THE ASSESSEE HAS ADMITTED ANY EXEMPT INCOME OR NOT, THI S ISSUE IS REMITTED BACK TO THE AO FOR A FRESH EXAMINATION. THE ASSESS EE SHALL LAY RELEVANT MATERIALS IN SUPPORT OF ITS CONTENTIONS BEFORE THE AO AND COMPLY WITH THE REQUIREMENTS OF THE AO IN ACCORDANCE WITH LAW. THE AO SHALL AFFORD ADEQUATE OPPORTUNITY TO THE ASSESSSEE AND DECIDE TH E MATTER IN ACCORDANCE WITH LAW. SINCE, THE LD. AR HAS NOT PR ESSED ALL OTHER GROUNDS, ALL OTHER GROUNDS ARE TREATED AS DISMISSED . 10. IN THE RESULT, THE ASSESSEES APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON TUESDAY, THE 01 ST DAY OF JANUARY, 2019 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) ! /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) ! /ACCOUNTANT MEMBER /CHENNAI, 1 /DATED: 01 ST JANUARY, 2019 JPV '*2343 /COPY TO: 1. & / APPELLANT 2. *+& /RESPONDENT 3. 5 ) ( /CIT(A) 4. 5 /CIT 5. 3* /DR 6. 7 /GF