Appeal details
Counselvise Citation
[2017] 130 COUNSELVISE.COM (IT) 8596 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 10 month(s) 27 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
06-02-2017
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Next Hearing Date
28-11-2016
Assessment Year
2010-2011
Appeal Filed On
09-03-2015
Judgement Text
IT(TP)A.337/BANG/2015 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'A', BENGALURU BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBERS AND SHRI. S. JAYARAMAN, ACCOUNTANT MEMBER I.T(TP).A NO.337/BANG/2015 (ASSESSMENT YEAR : 2010-11) OUTSOURCE PARTNERS INTERNATIONAL P. LTD, TOWER 2D PHASE-1, VIKAS TELECOM LTD, SEZ, VRINDAVAN TECH VILLAGE, DEVARABEESANAHALLI, BENGALURU 560 087 .. APPELLANT PAN : AAACO5734C V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE -5(1)(2), BENGALURU .. RESPONDENT ASSESSEE BY : SHRI. K. R. VASUDEVAN, ADVOCATE REVENUE BY : SHRI. G. R. REDDY, CIT-DR-I HEARD ON : 28.11.2016 PRONOUNCED ON : 06.02.2017 O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER : THIS APPEAL IS FILED BY THE ASSESSEE, AGAINST THE ORDER OF THE DCIT, CIRCLE -5(1)(2), BENGLAURU, FOR THE ASSESSMENT YEAR , PASSED U/S.143(3) R.W.S.144C IN PURSUANCE OF THE DRP DIRECTIONS DT 12 .12.14. 02. OUTSOURCE PARTNERS INTERNATIONAL P. LTD, THE A SSESSEE, HAS TWO UNITS- ONE IN BENGALURU AND THE OTHER IN DELHI, OPERATES AS AN OFFSHORE PROCESSING CENTRE OF OUTSOURCE PARTNERS INTERNATION AL INC. USA AND RENDERS IT(TP)A.337/BANG/2015 PAGE - 2 SIMILAR SERVICES TO CUSTOMERS IN INDIA. IT PROVIDE D BUSINESS PROCESS OUTSOURCING AND SOFTWARE DEVELOPMENT SERVICES TO IT S AES. THE INTERNATIONAL TRANSACTIONS ENTERED INTO DURING THE FY 2009-10 ON BUSINESS PROCESS OUTSOURCING SERVICES WAS AT RS.119,89,39,009/- . TH E ASSESSEE IN ITS TP STUDY CHOSE 10 COMPARABLES ADOPTING TNMM AS THE MOS T APPROPRIATE METHOD. THE TPO REJECTED ITS TP STUDY, CONDUCTED A FRESH ONE, RETAINED 4 COMPARABLES CHOSEN BY THE ASSESSEE, INTRODUCED 4 NE W COMPARABLES , ADOPTED TNMM ,ARRIVED THE NET MARGIN AT 29.17% , A FTER ADJUSTING FOR WORKING CAPITAL ARRIVED THE ADJUSTED MARGIN AT 28.3 2 AND DETERMINED THE SHORTFALL AT RS.12,50,87,839/-. THE ASSESSEE FILED ITS OBJECTIONS BEFORE THE DRP . THE DRP DIRECTED THE TPO TO EXCLUDE CERTAIN COMPARABLES FROM THE FINAL SET ON GROUNDS OF FUNCTIONAL DISSIMILARITY AN D APPLICATION OF CERTAIN QUANTITATIVE FILTERS. THE DCIT VIDE HIS ORDER GIVI NG EFFECT TO THE DRP DIRECTIONS DETERMINED THE FINAL TP ADJUSTMENT AT RS .133,512,120/-. AGGRIEVED AGAINST THAT ORDER, THE ASSESSEE FILED TH IS APPEAL WITH FOLLOWING GROUNDS : IT(TP)A.337/BANG/2015 PAGE - 3 IT(TP)A.337/BANG/2015 PAGE - 4 IT(TP)A.337/BANG/2015 PAGE - 5 03. THE AR DID NOT PRESS GROUNDS NOS 1,2,3 & 3A BEI NG GENERAL . WITH REGARD GROUND NO 3B & 5, HE PRESSED FOR THE INCLUSI ON OF R SYSTEMS INTERNATIONAL LTD ALONE. HE SUBMITTED THAT THE DRP EXCLUDED THIS COMPANY ON THE GROUND THAT THE FINANCIAL YEAR ENDING IS DIF FERENT AND ARGUED AS UNDER : THE APPELLANT HAD SELECTED R SYSTEMS AS A COMPARABL E COMPANY SINCE IT IS FUNCTIONALLY COMPARABLE. THE LEARNED TPO HAD SEL ECTED R SYSTEMS AS A COMPARABLE COMPANY IN THE TRANSFER PRICING ORDER FO R THE ASSESSMENT YEAR ('AY') 2006-07, 2007-08 AND 2008-09. FURTHER, IN TH IS REGARD, THE APPELLANT WOULD LIKE TO SUBMIT THAT THE DATA FOR TH E RELEVANT FINANCIAL YEAR FOR THE COMPANY CAN BE DERIVED FROM THE AUDITED QUA RTERLY DATA AVAILABLE ON THE WEBSITE AND HENCE THE SAME CAN BE CONSIDERED FO R THE PURPOSE OF IT(TP)A.337/BANG/2015 PAGE - 6 COMPARABILITY ANALYSIS. FURTHER, IN THIS REGARD, RE LIANCE MAY BE PLACED ON THE RECENT JUDGEMENT IN THE CASE OF MERCER CONSULTING (INDIA) PVT. LTD. (ITA NO. 966/DEL/2014), WHEREIN THE HON'BLE DELHI BENCH HAS HELD THAT IF THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO IS DIRECTLY AVAIL ABLE FROM THE ANNUAL ACCOUNTS OF THAT COMPARABLE, THEN A FUNCTIONALLY CO MPARABLE COMPANY SHOULD NOT BE REJECTED. THE RELEVANT EXTRACT ON THE APPLICATION OF DIFFERENT FINANCIAL YEAR END FILTER AND EXCLUSION OF OTHERWIS E FUNCTIONALLY COMPARABLE COMPANIES IS PROVIDED BELOW: 'BUT IF THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO IS DIRECTLY AVAIL ABLE FROM THE ANNUAL ACCOUNTS OF THAT COMPARABLE, THEN IT CANNOT BE HELD AS NOT PASSING THE TEST GIVEN UNDER SUB-RULE (4) OF RULE LOB. IN THE CASE U NDER CONSIDERATION BEFORE THE MUMBAI BENCH, THERE IS NO MENTION OF THE AUDITE D QUARTERLY DATA OF SUCH COMPARABLE BEING AVAILABLE FOR CONSIDERATION. IT IS QUITE NATURAL THAT IF THE DATA OF THE FINANCIAL YEAR IS NOT AVAILABLE OR NOT CAPABLE OF BEING DIRECTLY DEDUCED FROM THE ANNUAL ACCOUNTS OF SUCH COMPANY, T HEN SUCH CASE DESERVES TO BE EXCLUDED. IF, HOWEVER, THE AUDITED A CCOUNTS OF SUCH COMPARABLE DIRECTLY GIVE THE FIGURES IN SUCH A MANN ER THAT THE DATA OF THE FINANCIAL YEAR IN WHICH THE ASSESSEE HAS ENTERED IN TO AN INTERNATIONAL TRANSACTION CAN BE EASILY DEDUCED, THEN THERE IS NO REASON FOR EXCLUDING SUCH AN OTHERWISE COMPARABLE CASE. 11.7. WE FIND THAT R. SYSTEMS INTERNATIONAL LTD. HA S BEEN EXCLUDED BY THE TPO SOLELY FOR THE REASON THAT ITS FINANCIAL YEAR I S DIFFERENT WITHOUT CONSIDERING THAT THE DATA FOR THE FINANCIAL YEAR AD OPTED BY THE ASSESSEE CAN BE EASILY COMPILED FROM THE AUDITED STATEMENTS OF SUCH COMPANY.' FURTHER, THE ASSESSEE PLACED RELIANCE ON THE RULING BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN RESPECT OF THE COMMISSIONER OF INCOME TAX, FARIDABAD VS M/S MERCER CONSULTING (INDIA) PVT. LTD. GURGAON (ITA NO. 101 OF 2015 (O&M) WHEREIN THE HIGH COURT HELD AS FOLLOWS- WE ARE UNABLE TO AGREE WITH THE DECISION OF THE TP O AND OF THE DRP THAT AFFIRMED IT. THE VIEW TAKEN BY THE TRIBUNAL COMMEND S ITSELF TO US. IT IS NOT THE FINANCIAL YEAR PER SE THAT IS RELEVANT. EVE N IF THE FINANCIAL YEARS OF THE ASSESSEE AND OF ANOTHER ENTERPRISE ARE DIFFE RENT, IT WOULD MAKE NO DIFFERENCE. IF IT IS POSSIBLE TO DETERMINE THE VALU E OF THE TRANSACTIONS DURING THE CORRESPONDING PERIODS, THE PURPOSE OF CO MPARABLES WOULD BE SERVED. THE QUESTION IN EACH CASE IS WHETH ER DESPITE THE FINANCIAL YEARS OF THE ASSESSEE AND OF THE OTHER EN TERPRISE BEING DIFFERENT, THE FINANCIALS OF THE CORRESPONDING PERIOD OF EACH OF THEM ARE AVAILABLE. IF THEY ARE, THE TPO MUST REFER TO THE CORRESPONDING P ERIOD OF BOTH THE ENTITIES IN DETERMINING WHETHER THE TWO ARE COMPARA BLE OR NOT FOR THE PURPOSE OF DETERMINING THE ALP. WE ARE, THEREFORE, ENTIRELY IN AGREEMENT WITH THE D ECISION OF THE TRIBUNAL THAT IF THE DATA RELATING TO THE FINAN CIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERE D INTO IS DIRECTLY AVAILABLE FROM THE ANNUAL ACCOUNTS OF THAT IT(TP)A.337/BANG/2015 PAGE - 7 COMPARABLE, THEN IT CANNOT BE HELD AS NOT PASSING T HE TEST OF SUB-RULE(4) OF RULE 10B. FURTHER THE APPELLANT WOULD LIKE TO RELY ON THE DEL HI TRIBUNAL JUDGEMENT IN THE CASE OF AMERIPRISE INDIA PRIVATE LIMITED VS. ACIT (ITA NO. 7014/DE/2014) WHEREIN IT WAS HELD THAT COMPANY HAVING DIFFERENT FINANCIAL YEAR CAN BE CONSIDERED AS A COMPARABLE IF THE EXTRAPOLATION OF REST THREE MONTHS DATA IS AVAILABL E. THE EXTRACT FROM THE CASE IS GIVEN BELOW: 14.3 WE NOTE THAT IN THE IMMEDIATELY PRECEDING YEA R, THIS COMPANY WAS CONSIDERED BY COORDINATE BENCH OF TRIBUNAL. IT WAS DIRECTED THAT IF THE CONTENTION OF THE ASSESSEE IS CORRECT, THAT THE RELEVANT DATA FOR THE CONCERNED FINANCIAL YEAR CAN BE DEDUCED FROM THE IN FORMATION AVAILABLE FROM THEIR ANNUAL REPORTS, THEN, THERE CAN BE NO OBJECTION TO THE INCLUSION OF THESE COMPANIES IN THE LIST OF COM PARABLES WITH THE ADJUSTED DATA FOR THE RELEVANT FINANCIAL YEAR ITSEL F. RESPECTFULLY FOLLOWING THE REASONING OF COORDINATE BENCH IN IMME DIATELY PRECEDING YEAR, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF TPO/AO FOR EXAMINING THIS ASPECT OF THE MATTER. FURTHER, THE APPELLANT WOULD LIKE TO HIGHLIGHT THAT R SYSTEMS HAS BEEN ACCEPTED AS A COMPARABLE COMPANY IN THE TRANSFER PR ICING ORDER PASSED BY THE LEARNED TPO YEAR-ON-YEAR BASIS FROM A Y 2006-07 TO 2008-09, ON THE BASIS THAT THE IT HAS AN INFORMATIO N TECHNOLOGY ENABLED SERVICES SEGMENT AND QUALIFIES ALL FILTERS. HENCE, CONSIDERING THAT THERE IS NO CHANGE IN THE BUSINESS OF R SYSTEM S IN THE CURRENT ASSESSMENT YEAR I.E. AY 2010-11 FROM THE PREVIOUS A SSESSMENT YEARS REJECTING THIS COMPANY WOULD BE INAPPROPRIATE . ALSO, IN VIEW OF THE FACT THAT THE LEARNED TPO HAS ACCEPTED THIS COMPANY IN THE PREVIOUS THREE ASSESSMENT YEARS, HENCE IN ORDER TO MAINTAIN CONSISTENCY IN HIS APPROACH R SYSTEMS SHOULD BE CON SIDERED AS A COMPARABLE COMPANY. HENCE, CONSIDERING THE ABOVE EVIDENCES, IT IS SUBMI TTED THAT R SYSTEMS SHOULD BE ACCEPTED. WE HAVE HEARD THE RIVAL SUBMISSIONS. SINCE THE ASSE SSEE HAS MADE OUT A CASE, SUPRA, WE REMIT THIS MATTER TO THE TPO FOR RE -EXAMINATION AND RE- ADJUDICATION. 04. WITH REGARD TO GROUND NO 3C, IE THE COMPARAB LE COMPANIES SELECTED BY THE TPO WHICH DO NOT PASS THE TEST OF COMPARABIL ITY , THE AR BRIEFLY SUBMITTED AS UNDER : IT(TP)A.337/BANG/2015 PAGE - 8 1. ACCENTIA TECHNOLOGIES LTD, WITH UNADJUSTED MARGI N OF 43.06 %, HAS TO BE REJECTED FOR THE FOLLOWING REASONS : FUNCTIONALLY NOT COMPARABLE : PRODUCT DEVELOPMENT C OMPANY PRESENCE OF INTELLECTUAL PROPERTY RIGHTS (APPROX.57 % OF THE NET FIXED ASSETS) EXTRAORDINARY EVENTS DURING THE YEAR NO SEGMENTAL DATA AVAILABLE. 2. FORTUNE INFOTECH LTD , WITH UNADJUSTED MARGIN OF 22.80%, HAS TO BE REJECTED FOR THE FOLLOWING REASONS : FUNCTIONALLY NOT COMPARABLE : PRODUCT DEVELOPMENT C OMPANY PRESENCE OF INTELLECTUAL PROPERTY RIGHTS (APPROX.57 % OF THE NET FIXED ASSETS) RPT OF MORE THAN 25%. 3. ICRA ONLINE LTD , WITH UNADJUSTED MARGIN OF 43.3 9%, HAS TO BE REJECTED FOR THE REASON THAT IT IS NOT FUNCTIONALLY COMPARAB LE AND FAILS EXPORT EARNING FILTER. THE DETAILED WRITTEN SUBMISSIONS MADE IN TH IS REGARD ARE EXTRACTED AS UNDER : IT(TP)A.337/BANG/2015 PAGE - 9 IT(TP)A.337/BANG/2015 PAGE - 10 IT(TP)A.337/BANG/2015 PAGE - 11 IT(TP)A.337/BANG/2015 PAGE - 12 IT(TP)A.337/BANG/2015 PAGE - 13 IT(TP)A.337/BANG/2015 PAGE - 14 IT(TP)A.337/BANG/2015 PAGE - 15 IT(TP)A.337/BANG/2015 PAGE - 16 WE HEARD THE RIVAL SUBMISSIONS AND FIND THAT THE AS SESSEE HAS MADE OUT A CASE, SUPRA, AND HENCE DIRECT THE TPO TO EXCLUDE TH E ABOVE COMPARABLES. 05. THE AR DID NOT PRESS GROUND NOS 4,6,10. 06. THE NEXT GROUND PERTAINS TO GROUND NO 7 IE THE A O/ DRP NOT CONSIDERING PROVISION FOR BAD AND DOUBTFUL DEBTS A S NON-OPERATING IN NATURE. IN THIS REGARD, IT IS SUBMITTED THAT THE PR OVISION FOR DOUBTFUL DEBTS FIT IT(TP)A.337/BANG/2015 PAGE - 17 THE DESCRIPTION OF 'OPERATING ITEMS' ASSOCIATED WIT H THE RENDERING OF SERVICES AND SHOULD BE CONSIDERED AS PART OF THE OP ERATING COSTS AND RELIED IN CASE OF TECHBOOKS INTERNATIONAL PVT. LTD. VS. DC IT [ITA NO.240/DEL/2015]. IN THIS REGARD, RELEVANT EXTRACT OF SAID JUDGMENT IS PROVIDED BELOW: BOTH THE PROVISION FOR BAD DEBTS AS WELL AS DOUBTF UL ADVANCES ARE IN THE REALM OF THE OPERATIONS OF THE BUSINESS. IT IS NOT THE CASE OF THE EITHER SIDE THAT THE ASSESSEE MADE ANY EXCESS PROVI SION. IN OUR CONSIDERED OPINION, THE SAME HAS BEEN RIGHTLY TAKEN AS AN ITEM OF OPERATING EXPENSE OF THE ASSESSEE.' WE HEARD THE RIVAL SUBMISSIONS. IN LIGHT OF THE ABO VE, PROVISION FOR BAD AND DOUBTFUL DEBTS SHOULD BE TREATED AS OPERATING EXPEN SES AS THEY ARE CLOSELY LINKED WITH THE BUSINESS OPERATIONS AND ACCORDINGLY DIRECT THE TPO TO DO SO. 07. THE GROUND NO 8 IS WITH REGARD TO THE COMPUTAT ION OF WORKING CAPITAL ADJUSTMENT. IN THIS REGARD, IT IS SUBMITTED THAT TH E TPO HAS CONSIDERED ITS SUBMISSION AND GRANTED THE BENEFIT OF WORKING CAPI TAL ADJUSTMENT. HOWEVER, THE TPO IS OF OPINION THAT WORKING CAPITAL ADJUSTMENT SHOULD BE RESTRICTED TO 0.85%. THUS, HE HAS NOT GIVEN THE BAS IS OF ARRIVING AT THE AVERAGE COST OF CAPITAL OF THE COMPARABLE COMPANIES . THE ASSESSEE RELIED ON THE DECISION OF THIS TRIBUNAL IN MOONG CONTROLS INDIA P LTD ITA 551/BANG/2015 AY 2010 DT 27.11.2015 , WHEREIN THIS TRIBUNAL DIRECTED THE TPO TO ALLOW ACTUAL ADJUSTMENT TOWARDS THE DIFFEREN CES IN THE OF WORKING CAPITAL POSITION BETWEEN THE ASSESSEEE AND THE ENTR EPRENEURIAL COMPANIES SELECTED AS COMPARABLE . WE DIRECT THE TPO TO FOLLO W THIS DECISION. IT(TP)A.337/BANG/2015 PAGE - 18 08. THE GROUND NO 9 IS IN NOT PROVIDING APPROPRIATE RISK ADJUSTMENT .IN THIS REGARD, IT IS SUBMITTED THAT THE ASSESSEE IS A CAPTIVE CONTRACT IT ENABLED SERVICE PROVIDER TO ITS AES. BEING A CAPTIV E SERVICE PROVIDER, THE IT IS DEVOID OF ANY SIGNIFICANT RISKS RELATING TO I TS BUSINESS OPERATIONS. FURTHER, THE SIGNIFICANT BUSINESS AND ENTREPRENEUR IAL RISKS ARE BORNE BY THE AE AS IT OWNS ALL THE VALUABLE INTELLECTUAL PROPERT Y RIGHTS (KNOW- HOW. COPYRIGHTS ETC.) AND OTHER COMMERCIAL OR MARKETING INTANGIBLES (BRAND NAMES, TRADEMARKS ETC) RELATED TO THE SERVICES BEIN G PROVIDED BY THE APPELLANT. ACCORDINGLY, BEING A MERE SERVICE PROVID ER, THE IT DOES NOT OWN ANY INTEREST IN THESE INTANGIBLES AND PROVIDES MERE SERVICES BASED ON THE REQUIREMENTS OF THE AES IN RETURN FOR A FIXED MARK UP ON COST INCURRED IN RENDERING OF SERVICES AND PLACED RELIANCE ON THE FO LLOWING TRIBUNAL JUDGMENTS, WHEREIN COMPARABILITY/ ECONOMIC ADJUSTME NTS ARE ALSO MANDATED BY THE TRIBUNAL: SONY INDIA (P) LIMITED [114 LTD 448] E-GAIN COMMUNICATION PVT. LTD. [118 LTD 243] MENTOR RULING MOTOROLA SOLUTIONS INDIA PRIVATE LIMITED VS ACIT [I TA NO. 56 37/DEL/2011 ] FURTHER, IN ADDITION TO THE ABOVE RULINGS, THE PRIN CIPLE HAS ALSO BEEN UPHELD BY THE RECENT HIGH COURT RULING IN THE CASE OF CHRY SCAPITAL INVESTMENT ADVISORS (INDIA) PVT. LTD. VS DCIT [ITA 41712014], WHEREIN THE HON'BLE COURT HAS HELD THAT APPROPRIATE ADJUSTMENTS SHOULD BE CARRIED OUT IN SITUATIONS WHERE THERE ARE DIFFERENCES BETWEEN THE TESTED PARTIES AND IT(TP)A.337/BANG/2015 PAGE - 19 COMPARABLES AND IN CASE SUCH DIFFERENCES PERCEPTIBL E IN THE COMPARABLES CANNOT BE ELIMINATED ON ACCOUNT OF ADJUSTMENTS OR O THERWISE, THEN SUCH COMPARABLES HAVE TO BE REJECTED. WE HEARD THE RIVAL SUBMISSIONS AND FIND THAT THE AS SESSEE HAS MADE OUT A CASE, SUPRA, AND HENCE DIRECT THE TPO TO MAKE APPR OPRIATE RISK ADJUSTMENT. 09. THE GROUND NO 11 IS IN NOT PROVIDING APPROPRIAT E DEPRECIATION ADJUSTMENT IE DEPRECIATION ADJUSTMENT ON ACCOUNT OF DIFFERENCE IN THE RATES OF DEPRECIATION OF THE ASSESSEE VIS- -VIS COMPARA BLE COMPANIES : IN THIS REGARD, THE ASSESSEE DEPRECIATES ITS ASSETS AT A HIGHER RATE THAN THE RATES PRESCRIBED BY SCHEDULE XIV OF THE COMPANIES A CT, 1956. HOWEVER, MOST OF THE COMPARABLE COMPANIES CONSIDERED BY THE TPO FOLLOW RATES AS PRESCRIBED UNDER COMPANIES ACT, 1956, THEREBY CHARG ING A LOWER RATE OF DEPRECIATION. THEREFORE, IT SEEKS AN ADJUSTMENT ON ACCOUNT OF DIFFERENTIAL IN THE RATES OF DEPRECIATION CHARGED BY THE APPELLA NT VIZ-A-VIS COMPARABLES.WHEN APPLYING THE ARM'S LENGTH PRINCIPL E, THE CONDITIONS OF A CONTROLLED TRANSACTION (I.E. A TRANSACTION BETWEEN A TAXPAYER AND AN ASSOCIATED ENTERPRISE) ARE COMPARED TO THE CONDITIO NS OF COMPARABLE UNCONTROLLED TRANSACTIONS. IN THIS CONTEXT, TO BE C OMPARABLE MEANS THAT NONE OF THE DIFFERENCES (IF ANY) BETWEEN THE SITUAT IONS BEING COMPARED COULD MATERIALLY AFFECT THE CONDITION BEING EXAMINE D IN THE METHODOLOGY (E.G. PRICE OR MARGIN). IN CASE, THERE ARE ANY SUCH DIFFERENCES, IT(TP)A.337/BANG/2015 PAGE - 20 REASONABLY ACCURATE ADJUSTMENTS NEED TO BE MADE TO ELIMINATE THE EFFECT OF ANY SUCH DIFFERENCES. IT PLACED RELIANCE ON THE TRIBUNAL JUDGMENT IN THE CASE OF ASSESSEE'S GROUP COMPANY VIZ, EXLSERVICE.COM INDIA PRIVATE LIMITED VS ACIT [L.T.A .NO. 1939LDEI/2008] FOR ONE OF THE PRECEDING YEARS I.E., AY 2003-04, WHEREIN THE TRIBUNAL GRANTED ADJUSTMENT ON ACCOUNT OF HIGHE R RATES OF DEPRECIATION OF THE APPELLANT VIZ-A-VIS THE COMPARABLES. IN THIS REGARD, THE RELEVANT EXTRACT FROM THE RULING IS PROVIDED BELOW : WE, THEREFORE, SUM UP OUR CONCLUSION ON THIS ASPEC T OF THE MATTER BY HOLDING THAT IF THE ASSESSEE AS WELL AS THE COMP ARABLE COMPANIES ARE USING THE SLM AND THERE IS A DIFFERENCE IN THE RATES OF DEPRECIATION CHARGED BY THEM, THEN THERE IS A NEED TO MAKE SUITA BLE ADJUSTMENT TO THE PROFITS OF THE COMPARABLES. IT ALSO RELIED ON THE JUDGMENT BY THE BANGALORE BEN CH OF ITAT IN CASE OF ACI WORLDWIDE SOLUTIONS PRIVATE LTD [TS-176-ITAT-2015(B ANG)-TP], WHEREIN THE ITAT ALLOWED ASSESSEE'S CLAIM FOR DEPRECIATION ADJU STMENT FOR THE REASON THAT ASSESSEE WAS CHARGING HIGHER DEPRECIATION THAN RATES ADOPTED BY COMPARABLE COMPANIES. RELEVANT EXTRACTS FROM THE JU DGEMENT ARE PROVIDED BELOW : 10. THE NEXT REQUEST MADE ON BEHALF OF THE ASSESSE E WAS THAT THE ASSESSEE PROVIDED DEPRECIATION AT A HIGHER RATE THAN WHAT IS PRESCRIBED UNDER THE INCOME-TAX ACT, 1961, WHEREAS THE COMPARABLE CASES CHOSEN BY THE TPO CHARGED DEPRECIATION AS PER THE I. T. ACT. XXX.. ..XXX. . ..XXX 12. THE ASSESSEE ALSO RELIED ON THE DECISION OF THE HON'BLE TRIBUNAL IN THE CASE OF EGAIN COMMUNICATIONS PVT. LTD. V. /T O (2008) TIOL 282, ITAT, PUNE, WHEREIN IT WAS HELD THAT PROPER AD JUSTMENT HAS TO BE GIVEN WHERE THE RATES OF DEPRECIATION ADO PTED BY THE TESTED PARTY AND THE COMPARABLE COMPANIES ARE DIFFE RENT IT(TP)A.337/BANG/2015 PAGE - 21 XXX....XXX....XXX 14. BEFORE US, THE LIMITED REQUEST OF THE ID. COUNS EL FOR THE ASSESSEE IS TO ALLOW PROPER ADJUSTMENTS ON ACCOUNT OF RATES OF DEPRECIATION ADOPTED BY THE COMPARABLE COMPANIES. I N OUR VIEW, THE REQUEST OF THE ASSESSEE IS PROPER AND DESERVES TO BE ACCEPTED IN THE LIGHT OF THE DECISION OF THE PUNE B ENCH CITED BY THE ID. COUNSEL FOR THE ASSESSEE SUPRA. WE ACCOR DINGLY DIRECT THE TPO TO ALLOW APPROPRIATE ADJUSTMENTS WHI LE WORKING OUT THE MARGINS OF THE ASSESSEE AS WELL AS COMPARABLE CASES.' THUS, IT IS SUBMITTED THAT THE OP / TC MARGIN OF TP O COMPARABLES (POST FACTORING THE IMPACT OF DEPRECIATION AS PER THE ASS ESSEE'S RATE OF DEPRECIATION) AS UNDER: (THE COMPUTATION OF THE DEPRECIATION ADJUSTMENT FOR THE COMPARABLE COMPANIES ARE ATTACHED AS APPENDIX A ) BASED ON THE ABOVE TABLE, IT SUBMITTED THAT THE ARI THMETIC MEAN OP/ TC MARGIN (POST FACTORING THE IMPACT OF DEPRECIATION) OF THE COMPARABLE IT(TP)A.337/BANG/2015 PAGE - 22 COMPANIES CONSIDERED BY THE TPO IS 22.80% WHICH FA LLS WITHIN THE + / -5% RANGE OF THE OP / TC MARGIN OF 17.63% (AS COMPUTED BY THE TPO) EARNED BY THE ASSESSEE DURING THE FY 2009-10. ACCORDINGLY, THE PRICES OF INTERNATIONAL TRANSACTIONS OF THE ASSESSEE IN RELATION TO PROVISI ON OF IT ENABLED SERVICES COMPLY WITH THE ARM'S LENGTH STANDARD PRESCRIBED UN DER THE INDIAN REGULATIONS. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND M ERIT IN THE ABOVE SUBMISSIONS. HENCE, WE REMIT THIS MATTER TO THE TP O FOR RE-EXAMINATION AND RE-ADJUDICATION IN ACCORDANCE WITH THIS TRIBUNA L DECISION, SUPRA. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TR EATED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH DAY OF FEBRUARY, 2017. SD/- SD/- (SMT. ASHA VIJAYARAGHAVAN) (S. JA YARAMAN) JUDICIAL MEMBER ACCOU NTANT MEMBER MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME TAX 4. THE COMMISSIONER OF INCOME TAX (A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR
