DCIT, Bangalore V. M/s Sonic Wall Info Security Private Limited, Bangalore

ITA 340/BANG/2015

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9816 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 09-03-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAGHUNATHAN SHRI C H SUN
• Keywords: Transfer pricing

Judgement Text

IT(TP)A.340 & 555/BANG/2015 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'A', BENGALURU BEFORE SHRI. A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI. LALIET KUMAR, JUDICIAL MEMBER I.T(TP).A NO.340/BANG/2015 (ASSESSMENT YEAR : 2010-11) INCOME-TAX OFFICER, WARD 6(1)(2), BENGALURU .. APPELLANT V. M/S. DELL INTERNATIONAL SERVICES INDIA P. LTD, (MERGED WITH SONIC WALL INFO SECURITY P. LTD) 4 TH FLOOR, WING A, OFFICE -1, SALARPURIA SOLUTZONE, BELLANDUR, BENGALURU 560 066 .. RESPONDENT PAN : AAECA3617Q I.T(TP).A NO.555/BANG/2015 (ASSESSMENT YEAR : 2010-11) (BY THE ASSESSEE) ASSESSEE BY : SHRI. RAGHUNATHAN, ADVOCATE REVENUE BY : SHRI. C. H. SUNDAR RAO, CIT - DR HEARD ON : 04.12.2018 PRONOUNCED ON : 13.12.2018 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER : THESE ARE CROSS APPEALS ARE FILED BY THE REVENUE A ND THE ASSESSEE RESPECTIVELY, AGAINST THE ORDER OF THE ITO , WARD -6(1)(2), BENGALURU, DT.29.01.2015, FOR THE ASSESSMENT YEAR 2 010-11. IT(TP)A.340 & 555/BANG/2015 PAGE - 2 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL : THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL : IT(TP)A.340 & 555/BANG/2015 PAGE - 3 IT(TP)A.555/BANG/2015 BY THE ASSESSEE : 02. IN THIS REGARD THE LD. AR FOR THE ASSESSEE HAS DRAWN OUR ATTENTION TO PARA 6.2.4 OF THE DRP ORDER, AS WELL A S PARA 6.3.2 OF THE DRP ORDER TO THE EFFECT THAT THE DRP WITHOUT SPECIF ICALLY DEALING WITH THE INCLUSION / EXCLUSION OF THE COMPARABLES, HAS PASSED A CONSOLIDATED ORDER IN CRYPTIC MANNER AND THEREFORE THE DECISION IS REQUIRED TO BE REMANDED BACK .PARA 6.2.4 AND 6.3.2 MENTIONED AS UNDER : 6.24 OF THE DRP ORDER READS AS UNDER : IT(TP)A.340 & 555/BANG/2015 PAGE - 4 6.24. I FIND THAT THE TPOS FINDINGS ARE IN ORDER T O RENDER THE BALANCE FUNCTIONALLY SIMILAR. IN VIEW OF THE A FORESAID, I SEE NO REASON TO EXCLUDE ANY FURTHER COMPARABLES ON THE GROUND OF FUNCTIONAL DISSIMILARITY. THE ABOVE MENT IONED 05 COMPARABLES SHALL NOW FORM THE FINAL COMPARABLES ON WHICH THE ALP ADJUSTMENT NEEDS TO BE CARRIED OUT BY THE T PO. IT IS ORDERED ACCORDINGLY. 6.32 OF THE DRP ORDER READS AS UNDER : 6.32. IN VIEW OF THE AFORESAID, WE SEE NO REASON TO EXCLUDE ANY FURTHER COMPARABLES ON THE GROUND OF FUNCTIONAL DISSIMILARITY, AS THE BUSINESS OF THE COMPARABLES V IS-A-VIS THE ASSESSEE COMPANY FALLS WITHIN THE SAME SECTOR. THU S, THE BALANCE COMPARABLES MENTIONED ABOVE SHALL FORM THE FINAL COMPARABLES, EXCLUDING THE ONES THAT DO NOT QUALIFY THE TURNOVER FILTER, ON WHICH THE ALP ADJUSTMENT NEEDS TO BE CARRIED OUT BY THE TPO. OUR ATTENTION WAS FURTHER DRAWN TO OBJECTION AT ANN EXURE 1.19, RAISED BY THE ASSESSEE BEFORE THE DRP IN RESPECT OF EMPLOYEE COST FILTER OF 25%. THIS GROUND READS AS UNDER : GROUND NO.1 : THE LEARNED TRANSFER PRICING OFFICER (TPO) HAS NOT GIVEN ANY RATIONALE, NEITHER IN SHO W- CAUSE NOTICE NOR IN TP ORDER, FOR NOT APPLYING THE EMPLOYEE COST FILTER IN THE BENCHMARKING ANALYSIS. GROUND NO.2 : THE LEARNED TPO OUGHT TO HAVE APPLIED EMPLOYEE COST FILTER WHEREIN ONLY COMPANIES HAVING AN EMPLOYEE COST GREATER THAN 25% OF REVENUE SHOULD BE ACCEPTED. IT WAS ALSO SUBMITTED BY THE LD. AR THAT THE DRP DE SPITE RAISING THE SPECIFIC GROUND HAS FAILED NOT EVEN TO MENTION THE GROUNDS FROM THE LIST OF GROUNDS REPRODUCED BY IT IN THE BODY OF THE ORDER AND IT HAD FURTHER FAILED TO ADJUDICATE THIS GROUND. IT(TP)A.340 & 555/BANG/2015 PAGE - 5 03. PER CONTRA, THE LD. DR RELIES UPON THE ORDER PA SSED BY THE LOWER AUTHORITIES. 04. WE HAVE GONE THROUGH THE ORDER PASSED BY THE DR P AND THE GROUNDS RAISED BEFORE US. 05. WE HAVE CONSIDERED THE CONTENTIONS OF THE PARTI ES AND PERUSED THE RECORD. FROM THE PERUSAL OF THE PARAGRAPH REPR ODUCED HEREINABOVE, IT IS CLEAR THAT THE DRP HAD PASSED A CRYPTIC AND STEREOTYPED ORDER WITHOUT GIVING ANY REASONING FOR INCLUDING / EXCLUDING THE COMPARABLES IN RESPECT TO ITES AND SW DS. WE EXPECT THE DRP TO GIVE A REASONED AND COGENT FINDIN G WHILE DEALING WITH THE CONTENTION OF THE ASSESSEE FOR ALLOWING OR DISALLOWING THE PLEA OF THE ASSESSEE. HENCE WE REMAND THE ENTIRE MATTER BACK PERTAIN TO INCLUSION / EXCLUSION OF COMPARABLES TO THE FILE OF THE DRP TO PASS A REASONED SPEAKING ORDER, AFTER DEALIN G WITH THE CONTENTION OF THE ASSESSEE. NEEDLESS TO SAY WHILE DOING SO THE DRP SHALL GIVE ADEQUATE OPPORTUNITY OF HEARING TO THE A SSESSEE AND PASS A DETAILED ORDER. 06. WITH RESPECT TO THE OTHER ASPECT, I.E., EMPLOYE E COST FILTER, AS POINTED OUT BY THE LD. AR THAT THE ASSESSEE HAS RAI SED THE GROUND NO.1.19 BEFORE THE DRP AND THE SUPPORTING DOCUMENTS IN THIS REGARD WERE ALSO FILED. HOWEVER, THE DRP HAD FAILED TO AD JUDICATE THIS GROUND. IN VIEW OF THE ABOVE, WE DEEM IT APPROPRIA TE TO REMAND THE MATTER TO THE DRP WITH A DIRECTION TO ADJUDICATE TH E GROUND OF EMPLOYEE COST FILTER AFTER CONSIDERING THE SUBMISSI ON OF THE ASSESSEE IT(TP)A.340 & 555/BANG/2015 PAGE - 6 AND IF REQUIRED, CALL FOR A REPORT FROM THE AO / TP O IN THIS REGARD, A FRESH . 07. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. IT(TP)A.340/BANG/2015 BY THE REVENUE : 08. IN RESPECT OF GROUND NO.2 AND 3, WE MAY MENTION THAT JUST LIKE THE ASSESSEE, THE REVENUE IS ALSO AGGRIEVED BY THE CRYPTIC AND STEREOTYPED ORDER PASSED BY THE DRP, ESPECIALLY PAR AS 6.2.4 AND 6.3.2 WHICH ARE REPRODUCED ELSEWHERE IN THIS ORDER. AS WE ARE REMANDING THE MATTER BACK TO THE FILE OF THE DRP FO R DECIDING THE ISSUE AFRESH AFTER GIVING THE ASSESSEE A HEARING, T HEREFORE WE DEEM IT APPROPRIATE TO REMAND EVEN THE GROUNDS RAISED BY T HE REVENUE ALSO TO THE FILE OF THE DRP FOR PASSING A DETAILED AND S PEAKING ORDER WITH REGARD TO INCLUSION / EXCLUSION OF THE COMPARABLES. WE MAY LIKE TO ADD THAT WHILE ADJUDICATING THESE GROUNDS, THE DRP MAY ALSO CONSIDER THE DECISIONS PASSED BY THE TRIBUNAL AS AL SO THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE MATTER OF CHRYSC APITAL INVESTMENT ADVISORS (INDIA) (P.)LTD. V. DCIT [(2015 ) 376 ITR 183. IN VIEW OF THE ABOVE, GROUND NOS.2 & 3 BY THE REVEN UE ARE ALLOWED FOR STATISTICAL PURPOSE. 09. GROUND NO.4, RAISED BY THE REVENUE, PERTAINS TO EXPORT TURNOVER / TOTAL TURNOVER. IN THIS REGARD THE PART IES BEFORE US HAVE SUBMITTED THAT THIS ISSUE HAS BEEN CONCLUDED BY THE HONBLE SUPREME COURT IN THE MATTER OF H C L TECHNOLOGIES L TD [(2018) 93 TAXMANN.COM 33], IT(TP)A.340 & 555/BANG/2015 PAGE - 7 10. ON THE OTHER HAND THE LD. AR FOR THE ASSESSEE S UPPORTED THE ORDER OF THE LOWER AUTHORITIES. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THIS ISSUE IS PUT TO REST BY THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE MATTER OF CIT V. H CL TECHNOLOGIES LTD [(2018) 93 TAXMANN.COM 33], WHEREI N THE HONBLE SUPREME COURT HAS DECIDED THE ISSUE IN FAVO UR OF THE ASSESSEE HOLDING THAT THE EXPENSES BE REDUCED BOTH FROM THE EXPORT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER. THE H ONBLE SUPREME COURT IN PARAS 20 AND 21, HELD AS UNDER : 20. EVEN IN COMMON PARLANCE, WHEN THE OBJECT OF THE FO RMULA IS TO ARRIVE AT THE PROFIT FROM EXPORT BUSINESS, EXPEN SES EXCLUDED FROM EXPORT TURNOVER HAVE TO BE EXCLUDED FROM TOTAL TURNOVER ALSO. OTHERWISE, ANY OTHER INTERPRETATION MAKES THE FORMULA UNWORKABLE AND ABSURD. HENCE, WE ARE SATISFIED THAT SUCH DEDUCTION SHALL BE ALLOWED FROM THE TOTAL TURNOVER IN SAME PROPORTION AS WELL. 21. ON THE ISSUE OF EXPENSES ON TECHNICAL SERVICES PRO VIDED OUTSIDE, WE HAVE TO FOLLOW THE SAME PRINCIPLE OF IN TERPRETATION AS FOLLOWED IN THE CASE OF EXPENSES OF FREIGHT, TELECOMMUNICATION ETC., OTHERWISE THE FORMULA OF CA LCULATION WOULD BE FUTILE. HENCE, IN THE SAME WAY, EXPENSES I NCURRED IN FOREIGN EXCHANGE FOR PROVIDING THE TECHNICAL SERVIC ES OUTSIDE SHALL BE ALLOWED TO EXCLUDE FROM THE TOTAL TURNOVER . RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE HONB LE SUPREME COURT, WE DIRECT THAT THE EXPENSES INCURRED SHALL B E DEDUCTED BOTH FROM THE EXPORT TURNOVER AS WELL AS THE TOTAL TURNO VER FOR ARRIVING AT THE DEDUCTION U/S.10A OF THE ACT. 12. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOW ED. IT(TP)A.340 & 555/BANG/2015 PAGE - 8 13. TO SUMMARISE, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE AND THE APPEAL OF THE REVENUE IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH DAY OF DECEMBER, 2018. SD/- SD/- (A. K. GARODIA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER BENGALURU DATED : 13.12.2018 MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, BANGALORE.