ACIT, Circle-24(1), New Delhi V. Smart Analyst India Pvt. Ltd., Gurgaon

ITA 3436/DEL/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 6876 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I2
• Assessment Year: 2012-2013
• Appeal Filed On: 09-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M BARANWAL
• Keywords: Transfer pricing; Wholly owned subsidiary; Tax effect
• Section: 154; 92

Judgement Text

1 ITA NOS. 2568 & 3436/DEL/2018 IN THE INCOME TAX APPE LLATE TRIBUNAL DELHI BENCH: I-2 NEW DELHI BEFORE MS SUCHITRA KAMBLE, JUDICIAL MEMBER AND DR. B. R. R. KUMAR, ACCOUNT ANT MEMBER ITA NO. 2568/DEL/ 2018 ( A.Y 2012-13) & ITA NO. 3436/DEL/2 018 ( A.Y 2012-13) (THROUGH VIDEO C ONFERENCING) ACIT ROOM NO. 340, C. R. BUILDING, NEW DELHI (APPELLANT) VS SMART ANALYST INDIA PVT. LTD. 14 TH FLOOR, TOWER-D, DLF PHASE-III, DLF, CYBER CITY, GURGAON, HARYANA AAICS6117P (RESPONDENT) APPELLANT BY SH. M. BARANWAL, SR. DR RESPONDENT BY NONE ORDER PER SUCHITRA KAMBLE, JM THESE TWO APPEALS ARE FILED BY THE REVENUE AGAINST THE ORDER 22/03/2016 ORDER PASSED BY 144C(1)(3) READ WITH SEC TION 143 (3) OF THE INCOME TAX ACT, 1961 FOR ASSESSMENT YEAR 2012-13. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- (REVISED GROUNDS OF APPEALS) ITA NO. 2568/DEL/2018 ( A.Y 2012-13) 1. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE ID, CIT(A) WAS JUSTIFIED IN EXCLUDING ACCENTIA) TECHNOLOGIES LTD. AS COMPARABLE WHEN THERE IS MAIN FUNCTIONAL SIMILARITY BETWEEN THE ASSESSEE AND ACCENTIA TECHNOLOGIES DATE OF HEARING 09.08.2021 DATE OF PRONOUNCEMENT 09.08.2021 2 ITA NOS. 2568 & 3436/DEL/2018 LTD. AND MAJORITY OF THE INCOME OF THE COMPANY IS F ROM ITES SEGMENT. ALSO, DISREGARDING THE FACT THAT ACQUISITION OF SHARES HA S NOT MUCH EFFECT ON PROFITABILITY OF THE COMPANY?' 2. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD.CIT(A) WAS JUSTIFIED IN EXCLUDING ACROPETAL TECHNOLOGIES LTD. AS COMPARABLE WHEN THERE IS MAIN FUNCTIONAL SIMILARITY BETWEEN THE ASSESSEE AND ACROPETAL TECHNOLOGIES LTD. AND DISREGARDING THE FACT THAT ACQUISITION/MER GER OF COMPANIES HAS NOT MUCH EFFECT ON PROFITABILITY OF THE COMPANY. ? 3. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD.CIT(A) WAS JUSTIFIED TO DIRECT THE TPO FOR EXCLUSION OF M/S EC LERX SERVICES LTD. AS COMPARABLE WHEN THE ASSESSEE AND M/S ECLERX SERVICE S LTD. BOTH ARE IN SAME ITES SEGMENT 4. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD.CIT(A) WAS JUSTIFIED IN EXCLUDING INFOSYS LTD. FROM THE LIST OF COMPARABLES ON THE BASIS THAT THIS COMPANY IS DIFFERENT IN FAR AND HAS OWNED SIGNIFICANT INTANGIBLE DISREGARDING THE FACTS THAT THE COMPARABLE COMPANY IS FUNCTIONALLY SIMILAR AND THERE IS NO LINKAGE BETWEEN SIGNIFICANT INTANGI BLES AND THE MARGINS OF THE COMPANY? 5. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE CIT(A) WAS JUSTIFIED TO DIRECT THE TPO TO INCLUDE UNBILLED REVENUE/INVEN TORY/WORK IN PROGRESS WHILE CALCULATING THE WORKING CAPITAL ADJUSTED MARG IN WHEN TPO ALREADY CONSIDER INVENTORY FOR THE WORKING CAPITAL ADJUSTED MARGIN?' ITA NO. 3436/DEL/2018 ( A.Y 2012-13) 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) WAS JUSTIFIED TO DIRECT THE TPO TO INCLUDE UNBILLED REV ENUE/INVENTORY/WORK IN PROGRESS WHILE CALCULATING THE WORKING CAPITAL ADJU STED MARGIN WHEN TPO ALREADY CONSIDER INVENTORY FOR THE WORKING CAPITAL ADJUSTED MARGIN? 3. SAIPL IS A PRIVATE LIMITED COMPANY REGISTERED IN INDIA AND IS A WHOLLY OWNED SUBSIDIARY OF STAMP ANALYSIS INC. (SA INC.). SAIPL IS A BACK AND CAPTIVE 3 ITA NOS. 2568 & 3436/DEL/2018 SERVICE PROVIDER PARENT COMPANY SA INC. AND RENDERS BACK OFFICE RESEARCH SUPPORT SERVICES AND IS ENGAGED IN PROVIDING INFORM ATION RESEARCH AND RELATED SUPPORT SERVICES TO ITS AES. AS THE ASSESSEE COM PANY PROVIDES SERVICE PRIMARILY TO ITS AE, THE ASSESSEE IS ASSURED RETURN ON ITS COST FOR SERVICES RENDERED. THEREFORE, THE ASSESSEE IS INSULATED FRO M MAJORITY OF BUSINESS RISK AS IT IS ENGAGED IN PROVISION OF ITES/BPO SERVICES AS PER THE REQUIREMENTS AND SPECIFICATIONS PROVIDED BY THE AES. THE ASSESSEE COMPANY CONTENDED THAT THE ASSESSEE CAN BE CONSIDERED AS A CONTRACT SERVICE PR OVIDER AND DOES NOT BUYER ANY SIGNIFICANT BUSINESS RISK. THE ASSESSEE COMPAN Y FILED ITS RETURN OF INCOME ON 27/11/2012 FOR AY 2012-13 DECLARING TOTAL INCOME OF RS.1,20,55,020/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER MADE REFERENCE U/S 92CA(2) & 92 D(3) TO THE TPO. THE TP O VIDE ORDER DATED 29/1/2016 MADE ADJUSTMENTS AT RS. 1,36,72,619/- BEI NG THE ALP TO ITES SERVICES PROVIDED BY THE ASSESSEE COMPANY TO ITS AE S. THE ASSESSING OFFICER VIDE ORDER DATED 22/3/2016 ASSESS THE TOTAL INCOME AT RS. 2,65,71,450/-. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESS EE FILED APPEAL BEFORE THE CIT(A) . THE CIT ALLOWED THE TRANSFER PRICING ISSU E AND PARTLY ALLOWED THE APPEAL OF THE ASSESSEE VIDE ORDER DATED 31/01/2018. IN THE MEANWHILE THE ASSESSEE FILED RECTIFICATION APPLICATION BEFORE THE TRANSFER PRICING OFFICER ON 15/2/2016 U/S 154/92CA (3) OF THE ACT. THE TRANSFE R PRICING OFFICER VIDE ORDER DATED 16/6/2016 DISPOSED OFF THE SAID RECTIFI CATION APPLICATION. BEING AGGRIEVED BY THE SAID ORDER DATED 16/6/2016, THE AS SESSEE FIELD APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 4. DURING THE HEARING NONE APPEARED FOR THE ASSESSE E DESPITE SENDING NOTICES TO THE GIVEN ADDRESS UNDER FORM 36A OF THE APPEAL MEMO. THE NOTICE HAS BEEN RETURNED WITH THE REMARK THAT THE ASSESSEE HAS LEFT THE PREMISES. FROM THE ASSESSEES SIDE NO NEW ADDRESS HAS BEEN PR OVIDED TILL DATE. THEREFORE, WE ARE PROCEEDING ON THE BASIS OF THE OR DER OF THE TPO, DRAFT ASSESSMENT ORDER, ASSESSMENT ORDERS AND ORDER OF TH E CIT(A) AS WELL AS THE 4 ITA NOS. 2568 & 3436/DEL/2018 CONTENTIONS TAKEN BEFORE THE REVENUE AUTHORITIES BE LOW BY THE ASSESSEE WHICH ARE REPRODUCED IN THOSE ORDERS. 5. AT THE TIME OF HEARING, THE LD. DR SUBMITTED THA T THE TRANSFER PRICING ADJUSTMENT ARE TO THE EXTENT OF 1,36,72,619/- AND N O OTHER ADDITIONS WERE CHALLENGED BY THE REVENUE IN THESE TWO APPEALS. TH EREFORE, THE LD. DR SUBMITTED THAT AS PER THE CBDT CIRCULAR NO. 17/201 9 DATED 08.08.2019. THE TAX EFFECT IS BELOW 50 LACS THRESHOLD. THUS, THE A PPEAL NEEDS TO BE DISPOSED OFF ACCORDING TO THE CBDT CIRCULAR. 6. WE HAVE HEARD LD. DR AND THE CONTENTIONS TAKEN B Y THE LD. DR THAT THESE TWO APPEALS ARE BELOW THE ACTUAL TAX THRESHOL D WHICH IS COMING UNDER THE PURVIEW OF CBDT CIRCULAR NO. 17/2019 DATED 08.0 8.2019 AND THUS HAS TO BE WITHDRAWN. THEREFORE, WE ARE DISPOSING BOTH THE APPEALS AS LOW TAX EFFECT INCLUDING THE APPEAL WHICH WAS FILED BY THE REVENUE IN RESPECT OF ORDER OF THE CIT(A) RELATING TO RECTIFICATION U/S 154 OF THE ACT . HENCE, BOTH THE APPEALS ARE DISMISSED. 7. IN RESULT, BOTH THE APPEALS OF THE REVENUE ARE D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT IN PRESENCE OF L D. DR ON THIS 09 TH DAY OF AUGUST, 2021 SD/- SD/- (B. R. R. KUMAR) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL M EMBER DATED: 09/08/2021 R. NAHEED COPY FORWARDED TO: 5 ITA NOS. 2568 & 3436/DEL/2018 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI