HETTICH COMPETENCE SERVICES P.LTD, NAVI MUMBAI V. DCIT 15(2)(1), MUMBAI

ITA 3743/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6920 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2011-2012
• Appeal Filed On: 23-05-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: MADAN VAIDYA
• Keywords: Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K, MUMBAI BEFORE SHRI C.N.PRASAD, JM AND SHRI M.BALAGANESH, AM ITA NO.3743/MUM/2017 : ASST.YEAR 2011-2012 M/S. HETTICH COMPETENCE SERVICES PRIVATE LIMITED, 1201-1202, PLATINUM TECHNO PARK, PLOT NO.17 & 18 SECTOR 30A, VASHI NAVI MUMBAI 400 705. PAN : AACCH2019K. VS. THE DY.COMMISSIONER OF INCOME - TAX CIRCLE 15(2)(1) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MADAN VAIDYA RESPONDENT BY : SHRI ANAND MOHAN (CIT-DR) DATE OF HEARING : 0 3 .01.2019 DATE OF PRONOUNCEMENT : 03. 01.2019. O R D E R PER M.BALAGANESH (AM) : 1. THIS APPEAL IS DIRECTED AGAINST THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 56, MUMBAI [ IN SHORT THE LD CITA] IN APPEAL NO. CIT(A)- 56/DCIT-15(2)(1)/2016-17/134-H DATED 23.2.2017 AGAINST THE ASSESSMENT ORDER FRAMED BY THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX-15(2)(1), MUMBAI [ IN SHORT THE LD AO] UNDER SECTION [ U/S] 143(3) READ WITH SECTION 144C(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) PURSUANT TO THE ORDER OF THE LEARNED TRANSFER PRICING OFFICER [ IN SHORT THE LD TPO] U/S 92CA(3) OF THE ACT DATED 19.1.2015 FOR THE ASSESSMENT YEAR [ IN SHORT THE ASST YEAR] 2011-12. 2. AT THE OUTSET, THE LD AR STATED THAT THOUGH THE ASSESSEE HAD RAISED VARIOUS GROUNDS BEFORE THIS TRIBUNAL, THE ENTIRE ISSUE ON ADJUSTMENT MADE TO ARMS LENGTH PRICE [ IN SHORT THE ALP] REQUIRES TO BE SET ASIDE TO THE FILE OF THE LD TPO, WHICH WAS AGREED BY THE LD DR. WE FIND THAT THE ADJUSTMENT TO ALP HAS BEEN MADE ON CERTAIN INCLUSION AND EXCLUSION OF CERTAIN COMPARABLES BY THE LD TPO WHILE PASSING HIS ORDER U/S 92CA(3) OF THE ACT ON 19.1.2015. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING IT ENABLED SERVICES [ IN SHORT ITES] TO M/S HETTICH HOLDING GMBH & CO. , GERMANY , WHICH IS AN ASSOCIATED ENTERPRISE (AE) OF ITA NO.3743/MUM/2017. M/S.HETTICH COMPETENCE SERVICES P.LTD. 2 THE ASSESSEE. THE ASSESSEE HAD ENTERED INTO A SERVICE AGREEMENT WITH THE AE AND DURING THE YEAR, THE ASSESSEE HAD PROVIDED THE FOLLOWING SERVICES TO ITS AE :- (A) INFORMATION & COMMUNICATION : PROVISION OF IT-INFRASTRUCTURE AND SOFTWARE SOLUTIONS, PROPOSAL AND FURTHER DEVELOPMENT OF IT-SOLUTIONS, IT-SUPPORT. (B) DATE RECORDING : RECORDING OF DATA FOR DIFFERENT DEPARTMENTS, LIKE MATERIAL AND CUSTOMER MASTER DATA FOR SALES AND CATEGORY MANAGEMENT OR ORDER ENTRY FOR SALES DEPARTMENT, ETC. (C) DATA MINING : DATA MINING FOR MARKETING, PURCHASE OR SALES ACTIVITIES. (D) TELEPHONE SUPPORT : TELEPHONE SUPPORT TO CUSTOMERS OR EMPLOYEES IN DIFFERENT ACTIVITIES, LIKE HOT LINE OR HOT DESK FOR IT-SOFTWARE. (E) CAD/GRAPHICS RELATED SERVICES / E-SERVICES. (F) SUPPLY CHAIN MANAGEMENT SERVICES. (G) LANGUAGE TRANSLATION / COMMUNICATION SERVICES. (H) ADMINISTRATIVE SERVICES LIKE HR CONSULTANCY. (I) CUSTOMER SUPPORT SERVICES. (J) IT / ITES SERVICES. (K) MISC SERVICES : COMPUTER BASED AND MANAGEMENT RELATED SERVICES LIKE PROJECT MANAGEMENT, PROJECT ANALYSIS AND RESTRUCTURING. 3. THE LD TPO OBSERVED THAT THE ASSESSEE HAD BEEN COMPENSATED ON THE COST PLUS 10% BASIS FOR THE SERVICES PROVIDED TO ITS AE WHICH MITIGATES THE IMPACT OF MARKET RISK. THE ASSESSEE SUBMITTED THE EMPLOYEE PROFILE BEFORE THE LD TPO FURNISHING THE DETAILS OF NUMBER OF PERSONS TOGETHER WITH EDUCATIONAL QUALIFICATIONS. THE ASSESSEE ADOPTED THE PROFIT LEVEL INDICATOR [ IN SHORT PLI] AS OPERATING PROFIT (OP) / OPERATING COST (OC) SELECTING 7 COMPARABLES USING TRANSACTIONAL NET MARGIN METHOD [ IN SHORT TNMM]. THE ASSESSEE PLEADED THAT THE COMPARABLES MARGIN WAS 12.74% AS AGAINST ITS MARGIN OF 10% AND SINCE THE DIFFERENCE WAS WITHIN THE LIMIT OF + / - 5% , THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE WAS AT ARMS LENGTH. THE LD TPO DID A COMPARATIVE STUDY AND ARRIVED AT THE FINAL LIST OF COMPARABLES AND ARRIVED AT THE COMPARABLES MARGIN AT 22.32% . THE LD TPO ACCORDINGLY WORKED OUT THE ADJUSTMENT TO ALP FIGURE AT RS 56,24,509/- TO THE OPERATING INCOME RECEIVED BY THE ASSESSEE FROM ITS AE ON ACCOUNT OF PROVISION OF ITES AS UNDER:- ITA NO.3743/MUM/2017. M/S.HETTICH COMPETENCE SERVICES P.LTD. 3 PARTICULARS AMOUNT OPERATING INCOME (A) 5,94,89,286 OPERATING COST (B) 5,32,32,337 OPERATING PROFIT (C) 62,56,949 OP/OC 11.75% ARMS LENGTH OP/OC 22.32% ARMS LENGTH OPERATING PROFIT (D) 1,18,81,457 ARMS LENGTH OPERATING INCOME 6,51,13,795 ADJUSTMENT E-A 56,24,509 105% OF INCOME (A) 6,24,63,750 95% OF INCOME (A) 5,65,14,821 4. THE LD CITA UPHELD THE ACTION OF THE LD TPO / LD AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. WE FIND THAT THE LD AR HAD FILED A WRITTEN SUBMISSION BEFORE US POINTING OUT THAT THE LD TPO VIDE HIS NOTICE DATED 29.12.2014 HAD SPECIFICALLY ACCEPTED THE FOLLOWING COMPARABLES CHOSEN BY THE ASSESSEE FOR BENCHMARKING ITS TRANSACTIONS :- NDS INFOTECH LTD NSE INFOTECH SERVICES LTD REGENERSIS INDIA PVT LTD BUT WHILE PASSING THE ORDER U/S 92CA(3) OF THE ACT, THE LD TPO HAD REJECTED THESE COMPARABLES WITHOUT GIVING ANY OPPORTUNITY TO THE ASSESSEE. IT WAS FURTHER PLEADED THAT THE LD TPO HAD IGNORED ONE OF THE COMPARABLE M/S CORAL HUBS LTD ON THE GROUND THAT IT IS A LOSS MAKING ENTITY. IN THIS REGARD, IT WAS PLEADED THAT THE SAID COMPARABLE HAD INCURRED LOSS ONLY DURING THE ASST YEAR 2011-12 AND HAD NOT PERSISTENTLY INCURRED LOSSES. RELAINCE IN THIS REGARD WAS PLACED ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS WELSPUN ZUCCHI TEXTILES LTD REPORTED IN 391 ITR 211 (BOM). 5. IN THESE CIRCUMSTANCES, WE DEEM IT FIT AND APPROPRIATE, IN THE INTEREST OF JUSTICE AND FAIRPLAY, TO REMAND THE ENTIRE ISSUE OF TRANSFER PRICING ADJUSTMENT TO THE FILE OF LD TPO / LD AO FOR DENOVO ADJUDICATION IN ACCORDANCE WITH LAW. THE LD TPO IS ALSO DIRECTED TO GRANT ADEQUATE OPPORTUNITY TO THE ASSESSEE WITH REGARD TO THE FINAL SELECTION LIST OF COMPARABLES. THE ASSESSEE IS ALSO DIRECTED TO COOPERATE WITH THE LD TPO FOR EXPEDITIOUS DISPOSAL OF THE PROCEEDINGS BEFORE HIM. THE ASSESSEE AND THE REVENUE ARE GIVEN LIBERTY TO ADDUCE FRESH EVIDENCES AND LIST OF FRESH COMPARABLES FOR DETERMINATION OF ALP OF ITA NO.3743/MUM/2017. M/S.HETTICH COMPETENCE SERVICES P.LTD. 4 INTERNATIONAL TRANSACTIONS IN THE INSTANT CASE. ACCORDINGLY, THE GROUNDS 1 TO 4 RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 6. AT THE TIME OF HEARING, THE LD AR STATED THAT THE GROUND NO. 5 RAISED BY THE ASSESSEE IS NOT PRESSED BY HIM. ACCORDINGLY, THE SAME IS DISMISSED AS NOT PRESSED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 03 RD DAY OF JANUARY, 2019. SD/- SD/- ( C.N.PRASAD ) ( M.BALAGANESH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 03 RD JANUARY, 2019. DEVDAS* / COPY OF THE ORDER FORWARDED TO : / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT , MUMBAI. 4. THE CIT (A) - 56, MUMBAI. 5. DR, ITAT, MUMBAI 6. GUARD FILE.