Agility E Service Pvt.Ltd., Hyd, Hyderabad V. DCIT, Circle-1(1), Hyd, Hyderabad

ITA 363/HYD/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2458 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 22-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C SRINIVASA REDDY
• Assessee Lawyers: PRADEEP KASTHALA
• Keywords: Transfer pricing; Opportunity of being heard; International transaction
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 363/HYD/2016 ASSESSMENT YEAR: 2011-12 AGILITY E. SERVICES PVT. LTD., HYDERABAD. PAN AADCM 6759Q VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 2(3), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PRADEEP KASTHALA REVENUE BY : SHRI C. SRINIVASA REDDY DATE OF HEARING 27/12/2017 DATE OF PRONOUNCEMENT /02/2018 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS DIRECTED AGAINST THE ORDER PASSED U /S 143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961 (IN SHORT ACT) DATED 21/01/2016 RELATING TO AY 2011-12. 2. BRIEF FACTS OF THE CASE ARE, ASSESSEE COMPANY, E NGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT FILED ITS RETURN O F INCOME ON 09/11/2011 DECLARING TOTAL INCOME AT RS. 2,55,440/- UNDER REGULAR PROVISION OF INCOME TAX ACT AND BOOK PROFIT DECLARE D AT RS. 1,10,09,515/-. 2.1 AS THE CASE WAS COVERED BY THE PROVISIONS OF SE CTION 92CA, WITH THE PRIOR APPROVAL OF THE CIT-1, THE AO REFERR ED THE CASE TO TPO FOR DETERMINING THE ARMS LENGTH PRICE. 2 ITA NO. 363 /HYD/2016 AGILITY E SERVICES PVT. LTD.., HYD. 2.2 ASSESSEES PROFILE: THE ASSESSEE IS ENGAGED IN IT AND RELATED BUSINESS SOLUTIONS, TECHNICAL SUPPORT, MAINTENANCE ETC. IT PROVIDES SOF TWARE APPLICATIONS FOR FREIGHT FORWARDING BUSINESS AND SUPPORT SERVICE S ACCORDING TO THE CUSTOMIZATION AND PRODUCT SUPPORT PLAN GIVEN BY THE AE. 2.3 INTERNATIONAL TRANSACTIONS: AS PER 3CEB REPORT/TP DOCUMENT SUBMITTED BY THE ASS ESSEE, THE INTERNATIONAL TRANSACTIONS ARE AS UNDER: AE NATURE OF TRANSACTION AMOUNT (RS.) AGILITY LOGISTICS, KUWAIT PROVISIONS OF SDS 1,85,75,509 INSPECTION AND CONTROL SERVICES LTD. PROVISION OF SDS 3,88,72,675 GLOBAL INTEGRATED LOGISTICS PROVISION OF SDS 5,68,17,692 GLOBAL INTEGRATED LOGISTICS USA PROVISION OF SDS 1,45,67,064 AGILITY LOGISTICS, KUWAIT RECEIPT OF ECB 4,81,32,861 17,69,65,801 2.4 FINANCIAL RESULTS FOR FY 2011-12 ITEM AMOUNT IN RUPEES OPERATING REVENUE 13,89,80,820 OPERATING COST 12,96,66,364 OPERATING PROFIT 93,14,456 OP/OR 6.7% OP/OC 7.18% 3 ITA NO. 363 /HYD/2016 AGILITY E SERVICES PVT. LTD.., HYD. 2.5 EXAMINATION OF TP STUDY CONDUCTED BY ASSESSEE: THE ASSESSEE HAS CARRIED OUT THE ECONOMIC ANALYSIS AND HAS SUMMARIZED IT AS UNDER: NATURE OF INTERNATIONAL TRANSACTION MAM PLI MARGIN OF ASSESSEE MARGIN OF COMPARABLE PROVISION OF SDS 13,86,00,750 TNMM OP/OC 10.76 17.52 RECEIPT OF ECB 4,81,32,861 NA NA NA NA 2.6 THE TPO NOTED THAT THE ASSESSEE COMPANY HAD DIS CUSSED THE SEARCH PROCEDURE ADOPTED BY IT IN SEARCH FOR COMPAR ABLES AT PAGES 34 TO 39 OF THE TP DOCUMENTATION AND THE ASSESSEE HAD USED PROWESS & CAPITALINE PLUS DATA BASE IN SEARCH FOR COMPARABLE COMPANIES. FOR THE SOFTWARE DEVELOPMENT SERVICES, AFTER APPLYING C ERTAIN FILTERS, IT HAS SHORT-LISTED 18 COMPARABLES, ARITHMETIC MEAN PL I (OP/OC) WAS COMPUTED AT 17.52% AS AGAINST ITS OWN PLI OF AT 10. 76%. THE ASSESSEE HAD TAKEN BENEFIT OF +5% AND ACCORDINGLY, IT WAS STATED THAT THE INTERNATIONAL TRANSACTIONS ARE AT ARMS LENGTH. TPO OBSERVED THAT THE ASSESSEE DID NOT BENCHMARK REGARDING THE TRANSA CTION OF RECEIPT OF ECB. 2.7 THE TPO, AFTER REJECTING THE TP STUDY FILED BY THE ASSESSEE AND HAVING CONDUCTED A NEW SEARCH FOR COMPARABLES, THE FOLLOWING COMPARABLES WERE SELECTED AS FINAL COMPARABLES AFTE R ANALYZING THE DATABASES, THE ANNUAL REPORTS AND CONSIDERING THE OBJECTIONS FILED BY THE ASSESSE: S.NO. COMPANY NAME OP/OC% 1 ACROPETAL TECHNOLOGIES LTD. (SEG.) 34.59 2. AKSHAY SOFTWARE TECHNOLOGIES LTD. 0.85 3. CTIL LTD. 9.73 4. EVOKE TECHNOLOGIES LTD. 8.33 5. E-ZEST SOLUTIONS LTD. 38.03 6. ICRA TECHNO ANALYTICS LTD. 25.36 4 ITA NO. 363 /HYD/2016 AGILITY E SERVICES PVT. LTD.., HYD. 7. IGATE GLOBAL SOLUTIONS LTD. 24.58 8. INFOSYS LTD. 43.74 9. KALS INFORMATION SYSTEMS LTD. (SEG.) 10.35 10 LARSEN & TOUBRO INFOTECH LTD. 18.08 11 MINDTREE LTD. 11.79 12 PERSISTENT SYSTEMS & SOLUTIONS LTD. 21.51 13 PERSISTENT SYSTEMS LTD. 26.68 14 R S SOFTWARE (INDIA) LTD. 16.35 15 SANKHYA INFOTECH LTD. 17.64 16 SASKEN COMMUNICATION TECHNOLOGIES LTD. 26.99 17 TATA ELXSI LTD. 13.77 18 ZYLOG SYSTEMS LTD. 26.21 TOTAL 374.58 ARITHMETIC MEAN 20.81 AFTER APPLYING THE AVERAGE MARGINS OF THE COMPARABL ES TO THE FINANCIALS OF THE ASSESSEE, TPO ARRIVED THE ALP AS UNDER: DESCRIPTION AMOUNT ARMS LENGTH MARGIN 20.81% OPERATING COST (OC) 12,96,66,364 ARMS LENGTH PRICE = (100+AALM)*OC 15,66,49,934 PRICE RECEIVED (OR) 13,89,80,820 ADJUSTMENT U/S 92CA 1,76,69,114 THUS, THE ARMS LENGTH PRICE OF THE ASSESSEE IS RS. 15,66,49,934/- AND THE SHORTFALL OF RS. 1,76,69,114/- WAS TREATED AS AN ADJUSTMENT U/S 92CA OF THE ACT BY THE TPO AND ACCORDINGLY, PRO POSED THE ENHANCEMENT TO THE INCOME OF THE ASSESSEE U/S 92CA (3) OF THE ACT. 3. THE ASSESSEE CARRIED THE MATTER BEFORE THE DRP. THE DRP HAS ANALYZED THE SUBMISSIONS OF THE ASSESSEE AND DELETE D THE 14 COMPARABLES SELECTED BY THE TPO AND DISCUSSED THE I NDIVIDUAL COMPARABLES OF THE ABOVE SAID 14 COMPARABLES AS TO WHY THEY SHOULD NOT BE CONSIDERED AS COMPARABLE COMPANY WITH THE AS SESSEE COMPANY. HOWEVER, AFTER RETAINING FOUR COMPARABLES SELECTED BY THE TPO, ALP MARGIN OF THE SAID COMPARABLES ARE MORE TH AN THE ALP MARGIN ARRIVED BY THE TPO, THEREFORE, DRP CONFIRMED THE ORDER OF THE 5 ITA NO. 363 /HYD/2016 AGILITY E SERVICES PVT. LTD.., HYD. TPO. HOWEVER, AGGRIEVED WITH THE ABOVE ORDER, ASSES SEE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE FINAL ASSESSMENT ORDER PASSED BY THE ASSESSI NG OFFICER IS ERRONEOUS BOTH IN LAW AND ON THE FACTS OF THE CA SE. 2. THE LD. DISPUTE RESOLUTION PANEL ('DRP') HAS ERR ED BY UPHOLDING THE ORDER OF THE LD. TPO. 3. THE LD. TPO HAS ERRED BY REJECTING THE FAR ANALY SIS OF THE ASSESSEE AND ADOPTING DIFFERENT FILTERS TO ARRIVE A T THE COMPARABLE SET. THE LD. TPO HAS ERRED BY REJECTING THE TP STUDY OF THE ASSESSEE. 4. WITHOUT PREJUDICE TO THE ABOVE, THE LD. TPO ERRE D BY CONSIDERING COMPARABLES THAT HAVE HIGH TURNOVERS AN D HAVE BRANDS. 5. WITHOUT PREJUDICE TO THE ABOVE, THE LD. TPO HAS ERRED BY CONSIDERING THE FOLLOWING COMPARABLES THAT HAVE DIF FERENT FAR ANALYSIS AND ARE NOT COMPARABLE TO THE ASSESSEE: A. ACROPETAL TECHNOLOGIES LIMITED (SEGMENT) B. E - ZEST SOLUTIONS LTD C. ICRA TECHNO ANALYTICS LTD D. IGATE GLOBAL SOLUTIONS LTD E. INFOSYS LTD F. L& T INFOTECH LTD G. MINDTREE LTD H. PERSISTENT SYSTEMS & SOLUTIONS LTD I. PERSISTENT SYSTEMS LTD J. SASKEN COMMUNICATION TECHNOLOGIES LTD K. TATA ELXSI LTD L. ZYLOG SYSTEMS LTD 5. LD. AR OF THE ASSESSEE SUBMITTED BEFORE US THAT EVEN THOUGH DRP HAS ACCEPTED THE CONTENTIONS OF THE ASSESSEE WI TH REGARD TO 14 COMPARABLES AND RETAINED ONLY 4 COMPARABLES, WHICH ARE, INFOSYS LTD., PERSISTENT SYSTEMS & SOLUTIONS LTD., SASKEN C OMMUNICATION TECHNOLOGIES LTD AND PERSISTENT SYSTEMS LTD. HE SUB MITTED THAT THE FOUR COMPARABLES RETAINED BY THE DRP ARE HAVING HIG H TURNOVER COMPARED TO THE ASSESSEE, WHOSE TURNOVER IS 20 CROR ES AND ALSO THEY ARE FUNCTIONALLY DIFFERENT. 6 ITA NO. 363 /HYD/2016 AGILITY E SERVICES PVT. LTD.., HYD. 6. THE LD. DR, ON THE OTHER HAND, SUPPORTED THE ORD ERS OF REVENUE AUTHORITIES AND SUBMITTED THAT NO SPECIFIC OBJECTIO NS WERE RAISED BY THE ASSESSEE BEFORE THE TPO. THEREFORE, HE AGREED W ITH THE REVENUE AUTHORITIES. 7. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE NOTED THAT THE DRP HAS ADJUDICATED THE O BJECTIONS RAISED BY THE ASSESSEE WITH REGARD TO COMPARABLES AND INDI VIDUALLY THEY HAVE DISCUSSED 14 COMPARABLES AND OPINED THAT THESE 14 COMPARABLES CANNOT BE COMPARED TO ASSESSEES CASE, HOWEVER, RETAINED 4 COMPARABLES, WHICH HAVE HIGH TURNOVER AN D ARE ALSO FUNCTIONALLY DIFFERENT AS PER THE SUBMISSIONS OF TH E ASSESSEE. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND CAS E LAW RELIED UPON BY THE LD. AR, WE ARE OF THE OPINION THAT THE FOUR COMPANIES RETAINED BY THE DRP, CERTAINLY, HAVE HIGH TURNOVER COMPARED TO THE TURNOVER OF THE ASSESSEE AND ARE ALSO FUNCTIONALLY DIFFERENT. THEREFORE, IN OUR VIEW, ALL THE COMPARABLES SELECTE D BY THE TPO ARE NOT COMPARABLES AS PER THE ABOVE DISCUSSION. THEREF ORE, WE REMIT THIS ISSUE BACK TO THE FILE OF THE TPO TO DO FRESH TP STUDY AND ARRIVE AT THE PROPER TP ADJUSTMENT DE-NOVO. ACCORDINGLY, W E DIRECT THE TPO TO REDO THE TP ADJUSTMENT AFRESH AFTER PROVIDING PR OPER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN THE MATTER. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 28 TH FEBRUARY, 2018. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHM AN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 28 TH FEBRUARY, 2018 KV 7 ITA NO. 363 /HYD/2016 AGILITY E SERVICES PVT. LTD.., HYD. COPY TO:- 1) AGILITY E SERVICES PVT. LTD., 4 TH FLOOR, C-BLOCK, MY HOME HUB, HITECH CITY ROAD, MADHAPUR, HYDERABAD 81 2) DCIT, CIRCLE 1(1), HYD. 3) DRP, BENGALURU 4) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 5) GUARD FILE