DCIT, Bangalore V. M/s Sling Media Pvt. Ltd., Bangalore

ITA 375/BANG/2015

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8166 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2020
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 14-01-2020
• Assessment Year: 2010-2011
• Appeal Filed On: 16-03-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Transfer pricing; Tax effect
• Section: 73

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI B.R BASKARAN , ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A NO.375/BANG/2015 ASSESSMENT YEAR : 2010-11 THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-6(1)(1), BENGALURU. VS. M/S SLING MEDIA PVT. LTD., 14/3, 4 TH FLOOR, RASTROTHANA BHAVAN, (OPP. RBI), NRUPATHUNGA ROAD, BENGALURU-560 001. PAN AACCD 0297 R APPELLANT RESPONDENT CO NO.125/BANG/2015 ASSESSMENT YEAR : 2010-11 M/S SLING MEDIA PVT. LTD., 14/3, 4 TH FLOOR, RASTROTHANA BHAVAN, (OPP. RBI), NRUPATHUNGA ROAD, BENGALURU-560 001. PAN AACCD 0297 R VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-6(1)(1), BENGALURU APPELLANT RESPONDENT IT(TP)A NO.504/BANG/2015 ASSESSMENT YEAR : 2010-11 M/S SLING MEDIA PVT. LTD., 14/3, 4 TH FLOOR, RASTROTHANA BHAVAN, (OPP. RBI), NRUPATHUNGA ROAD, BENGALURU-560 001. PAN AACCD 0297 R VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-6(1)(1), BENGALURU APPELLANT RESPONDENT IT(TP)A NO.375, 504/BANG/2015 CO. 125/BANG/2015 PAGE 2 OF 10 APPELLANT BY : MS. NEERA MALHOTRA. CIT (DR) RESPONDENT BY : SHRI PADAMCHAND KHINCHA, C.A DATE OF HEARING : 14.1.2020 DATE OF PRONOUNCEMENT : 21.1.2020 O R D E R PER B.R BASKARAN, ACCOUNTANT MEMBER : THE CROSS APPEALS FILED BY THE PARTIES AND THE CRO SS OBJECTION FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDE R PASSED BY THE AO FOR ASST. YEAR 2010-11 IN PURSUANCE OF DIRECTION S ISSUED BY LD DISPUTE RESOLUTION PANEL (DRP). 2. AT THE TIME OF HEARING, THE LD DR FURNISHED WORK ING SHEET COMPUTING TAX EFFECT INVOLVED ON THE ISSUES CONTEST ED BY THE REVENUE AND SUBMITTED THAT THE TAX EFFECT INVOLVED IS ONLY RS.16.56 LAKHS. ACCORDINGLY SHE SUBMITTED THAT THE REVENUE WILL NOT PRESS ITS APPEAL, AS THE TAX EFFECT IS LESS THAN RS.50.00 LAKHS. 3. THE LD AR SUBMITTED THAT THE CROSS-OBJECTION FIE LD BY THE ASSESSEE WAS IN PURSUANCE OF APPEAL FILED BY THE RE VENUE. SINCE THE REVENUE APPEAL IS NOT BEING PRESSED, THE LD AR SUBMITTED HE WILL NOT PRESS CROSS-OBJECTION ALSO. 4. IN VIEW OF THE ABOVE, APPEAL OF THE REVENUE AND CROSS- OBJECTION FILED BY THE ASSESSEE ARE DISMISSED AS NO T PRESSED. 5. IN RESPECT OF THE APPEAL FILED BY THE ASSESSEE, THE LD AR ADVANCED HIS ARGUMENTS ON THE FOLLOWING TWO ISSUES ONLY. IT(TP)A NO.375, 504/BANG/2015 CO. 125/BANG/2015 PAGE 3 OF 10 A) PRAYER FOR EXCLUSION OF 2 COMPANIES NAMED 1) M/S ICRA TECHNO ANALYTICS 2) KALS INFORMATION. B) REQUEST FOR GIVING CORRECT AMOUNT OF DEDUCTION T OWARDS WORKING CAPITAL ADJUSTMENT. 6. WE HEARD THE PARTIES AND PERUSED THE RECORD. TH E ASSESSEE IS ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES TO ITS ASSOCIATED ENTERPRISES. IT IS A CAPTIVE SERVICE PR OVIDER. THE ASSESSEE ADOPTED OPERATING PROFIT/OPERATING COST (O P/OC) AS PROFIT LEVEL INDICATOR AND APPLIED TNMM METHOD AS MOST APP ROPRIATE METHOD. REJECTING THE TRANSFER PRICING STUDY CONDU CTED BY THE ASSESSEE, THE TPO SELECTED 11 COMPANIES AS COMPARAB LES. HOWEVER THE LD DRP EXCLUDED 6 COMPANIES AND RETAINED 5 COMP ARABLE COMPANIES. IN THE PRESENT APPEAL THE ASSESSEE SEEK S EXCLUSION OF FOLLOWING TWO COMPANIES. 1) ICRA TECHNO ANALYTICS LTD., 2) KALS INFORMATION SYSTEMS LTD. 7. THE LD AR SUBMITTED THAT BOTH THE ABOVE SAID COM PANIES WERE HELD TO BE NOT GOOD COMPARABLES FOR CAPTIVE SOFTWAR E SERVICE PROVIDERS IN THE DECISION RENDERED BY THE COORDINAT E BENCH IN THE CASE OF M/S ELECTRONICS FOR IMAGING PVT. LTD., VS. DCIT IN IT(TP)A NO.212/BANG/2015 DATED 24/2/2016. ACCORDINGLY THE LD AR PRAYED FOR EXCLUSION OF BOTH THE ABOVE COMPANIES. 8. THE LD DR, ON THE CONTRARY. PLACED HER RELIANCE ON THE DECISION RENDERED BY ANOTHER COORDINATE BENCH IN TH E CASE OF M/S IT(TP)A NO.375, 504/BANG/2015 CO. 125/BANG/2015 PAGE 4 OF 10 RADISYS INDIA PVT. LTD., VS. ITO (2016) 73 TAXMANN. COM 140, WHEREIN THE TRIBUNAL HAS RESTORED BOTH THE ABOVE SA ID COMPANIES TO THE FILE OF AO/TPO FOR EXAMINING THEM AFRESH. ACCO RDINGLY THE LD DR PRAYED THAT THE BOTH THE COMPANIES MAY BE RESORT ED TO THE FILE OF THE AO/TPO FOR EXAMINING THEM AFRESH. 9. IN THE REJOINDER, THE LD AR SUBMITTED THAT THE D ECISION RENDERED BY THE TRIBUNAL IN THE CASE OF M/S ELECTRO NICS FOR IMAGING INDIA PVT. LTD. IS LATER ONE, I.E., IT WAS RENDERED SUBSEQUENT TO THE DECISION OF M/S RADISYS INDIA PVT. LTD. HE FURTHER SUBMITTED THAT THERE ARE MANY OTHER DECISIONS RENDERED SUBSEQUENTL Y BY THE CO- ORDINATE BENCHES, WHEREIN BOTH THE ABOVE SAID COMPA NIES HAVE BEEN HELD TO BE NOT GOOD COMPARABLES TO A CAPTIVE S ERVICE PROVIDER. HE INVITED OUR ATTENTION TO THE FOLLOWING DECISIONS IN THIS REGARD:- (A) M/S BROADCOM INDIA RESEARCH P LTD VS. ACIT (I T(TP)A NO.348/BANG/2015 DATED 13-07-2016). (B) M/S APPLIED MATERIALS INDIA P LTD (IT(TP)A NO .180 (BANG) 2015 DATED 26.08.2016) 10. WE HEARD BOTH THE PARTIES ON THIS ISSUE AND PER USED THE RECORD. THE DECISION IN THE CASE OF RADISYS INDIA (P) LTD WAS RENDERED ON 04-09-2015. ADMITTEDLY THE DECISION WA S RENDERED BY THE COORDINATE BENCH IN THE CASE OF ELECTRONICS FOR IMAGING INDIA PVT. LTD., ON 24.02.2016 AND THE SAME IS LATER ONE. FURTHER THERE ARE MANY OTHER DECISIONS WHEREIN THE DECISION RENDE RED ON THE ABOVE SAID TWO COMPANIES ARE IDENTICAL WITH THE VIE W EXPRESSED IN IT(TP)A NO.375, 504/BANG/2015 CO. 125/BANG/2015 PAGE 5 OF 10 THE CASE OF ELECTRONICS FOR IMAGING INDIA P LTD. A CCORDINGLY WE PREFER TO FOLLOW THE DECISION RENDERED IN THE CASE OF M/S ELECTRONICS FOR IMAGING INDIA PVT. LTD.(SUPRA). IN THE ABOVE S AID CASE BOTH THE COMPANIES UNDER CONSIDERATION HAVE BEEN HELD TO BE NOT GOOD COMPARABLES. FOR THE SAKE OF CONVENIENCE, WE EXTRA CT BELOW THE RELEVANT OBSERVATIONS MADE BY THE COORDINATE BENCH IN THE CASE OF ELECTRONICS FOR IMAGING INDIA PVT. LTD. (SUPRA). 13. WE SHALL DEAL WITH EACH COMPARABLE WHICH HAS B EEN DISPUTED BY THE REVENUE ONE BY ONE AS UNDER :- (1) ICRA TECHNO ANALYTICS LTD. (SEG) 14. AT THE OUTSET, WE NOTE THAT APART FROM HAVING THE RELATED PARTY REVENUE AT 20.94% OF THE TOTAL REVENU E, THIS COMPANY WAS ALSO FOUND TO BE FUNCTIONALLY NOT COMPA RABLE WITH SOFTWARE DEVELOPMENT SERVICES SEGMENT OF THE ASSESSEE. THE DRP HAS GIVEN ITS FINDING AT PAGES 1 3 TO 14 AS UNDER:- HAVING HEARD THE CONTENTION, ON PERUSAL OF THE AN NUAL REPORT, IT IS NOTICED BY US THAT THE SEGMENTAL INFO RMATION IS AVAILABLE FOR TWO SEGMENTS I.E., SERVICES AND SALES . HOWEVER, IT IS EVIDENT FROM THE ANNUAL REPORT THAT THE SERVI CE SEGMENT COMPRISES OF SOFTWARE DEVELOPMENT, SOFTWARE CONSULT ANCY, ENGINEERING SERVICES, WEB DEVELOPMENT, WEB HOSTING, ETC. FOR WHICH NO SEGMENTAL INFORMATION IS AVAILABLE AND THE REFORE, THE OBJECTION OF THE ASSESSEE IS FOUND ACCEPTABLE. IT(TP)A NO.375, 504/BANG/2015 CO. 125/BANG/2015 PAGE 6 OF 10 ACCORDINGLY, ASSESSING OFFICER IS DIRECTED TO EXCLU DE THE ABOVE COMPANY FROM THE COMPARABLES. 15. WE FIND THAT THE FACTS RECORDED BY THE DRP IN RESPECT OF BUSINESS ACTIVITY OF THIS COMPANY ARE NOT IN DIS PUTE. THEREFORE, WHEN THIS COMPANY IS ENGAGED IN DIVERSIF IED ACTIVITIES OF SOFTWARE DEVELOPMENT AND CONSULTANCY, ENGINEERING SERVICES, WEB DEVELOPMENT & HOSTING AND SUBSTANTIALLY DIVERSIFIED ITSELF INTO DOMAIN OF BUS INESS ANALYSIS AND BUSINESS PROCESS OUTSOURCING, THEN THE SAME CANNOT BE REGARDED AS FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSEE WHO IS RENDERING SOFTWARE DEVELOPMENT SERVICES TO ITS AE. 16. IN VIEW OF THE ABOVE FACTS, WE DO NOT FIND AN Y ERROR OR ILLEGALITY IN THE FINDINGS OF THE DRP THAT THIS COM PANY IS FUNCTIONALLY NOT COMPARABLE WITH THAT OF A PURE SOF TWARE DEVELOPMENT SERVICE PROVIDER. (2) . (3) KALS INFORMATION SYSTEMS LTD. 21. THE ASSESSEE RAISED OBJECTIONS AGAINST THIS CO MPANY ON THE GROUND THAT THIS COMPANY IS ENGAGED IN THE DEVE LOPMENT OF SOFTWARE AND SOFTWARE PRODUCTS. FURTHER, THIS C OMPANY CONSISTS OF STPI UNIT AND ALSO HAVING A TRAINING CE NTRE ENGAGED IN TRAINING OF SOFTWARE PROFESSIONALS ON ON LINE PRODUCTS. THUS, WHEN THIS COMPANY IS HAVING REVENU E FROM IT(TP)A NO.375, 504/BANG/2015 CO. 125/BANG/2015 PAGE 7 OF 10 SOFTWARE SERVICES AS WELL AS SOFTWARE PRODUCT, THE SAME CANNOT BE CONSIDERED AS COMPARABLE WITH SOFTWARE DEVELOPMENT SERVICE PROVIDING COMPANY. 22. THE DRP HAS DIRECTED THE AO TO EXCLUDE THIS CO MPANY FROM THE LIST OF COMPARABLES BY TAKING NOTE OF THE FACT THAT THERE WERE INVENTORIES IN THE BOOKS OF ACCOUNTS OF THIS COMPANY WHICH SHOWS THAT THIS COMPANY IS IN THE SOF TWARE PRODUCT BUSINESS. FURTHER, BY FOLLOWING THE DECISI ON OF THIS TRIBUNAL IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA LTD. V. DCIT, ITA NO.1054/BANG/2011 DATED 23.11.201 2, THIS COMPANY WAS FOUND TO BE NOT COMPARABLE WITH TH AT OF THE ASSESSEE. 23. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AN D CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD . DR HAS NOT DISPUTED THE FACT THAT COMPARABILITY OF THIS CO MPANY HAS BEEN EXAMINED BY THIS TRIBUNAL IN A SERIES OF DECIS IONS INCLUDING IN THE CASE OF TRILOGY E-BUSINESS SOFTWAR E INDIA LTD. (SUPRA). WE FURTHER NOTE THAT IN THE BALANCE SHEET OF THIS COMPANY AS ON 31.3.2010, THERE ARE INVENTORIES OF RS.60,47,977. THEREFORE, WHEN THIS COMPANY IS IN T HE BUSINESS OF SOFTWARE PRODUCTS, THE SAME CANNOT BE C OMPARED WITH A PURE SOFTWARE DEVELOPMENT SERVICES PROVIDER. ACCORDINGLY, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE IMPUGNED FINDINGS OF THE DRP. IT(TP)A NO.375, 504/BANG/2015 CO. 125/BANG/2015 PAGE 8 OF 10 11. ACCORDINGLY FOLLOWING THE ABOVE SAID DECISION, WE DIRECT THE AO TO EXCLUDE BOTH THE COMPANIES REFERRED ABOVE. 13. THE NEXT ISSUE CONTESTED BY THE ASSESSEE RELATE S TO WORKING CAPITAL ADJUSTMENT GRANTED BY THE TPO. THE LD AR SUBMITTED THAT THE TPO HAS GIVEN WORKING CAPITAL ADJUSTMENT RESTRI CTING THE SAME TO 1.98% AS AGAINST THE AMOUNT COMPUTED BY THE ASSE SSEE. HE SUBMITTED THAT THE CO-ORDINATE BENCH IN THE CASE OF CERNER HEALTH CARE PVT. LTD., IN IT(TP)A NO.44/BANG/2015 DATED 1 6/1/2017 HAS HELD THAT THE AO/TPO HAS TO ALLOW WORKING CAPITAL A DJUSTMENT ON ACTUAL BASIS WITHOUT RESTRICTING THE SAME. 13. WE HEARD LD DR ON THIS ISSUE AND PERUSED THE RE CORD. WE NOTICE THAT THE COORDINATE BENCH IN THE CASE OF CER NER HEALTH CARE PVT. LTD., HAS OBSERVED AS UNDER IN AN IDENTICAL IS SUE :- 15. THE NEXT ISSUE IS THAT THE AR SUBMITTED THAT THE TPO HAS RESTRICTED THE WORKING CAPITAL ADJUSTMENT TO 1.98% AND 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 DIFFERENCES IN THE WORKING CAPITAL POSITION BETWEEN THE ASSESSEE AND THE ENTREPRENEURIAL COMPANIES SELECTED AS COMPARABLE. WE DIRECT THE TPO TO FOLLOW THIS DECISION. TO THIS EXTENT, THE ASSESSEES APPEAL GROUND IS ALLOWED. IT(TP)A NO.375, 504/BANG/2015 CO. 125/BANG/2015 PAGE 9 OF 10 14. WE NOTICED THE COORDINATE BENCH HAS RESTORED TH E MATTER TO THE FILE OF THE AO/TPO TO FOLLOW THE DECISION IN TH E CASE OF MOONG CONTROLS INDIA PVT. LTD., (SUPRA). ACCORDINGLY WE RESTORE THIS ISSUE TO THE FILE OF AO/TPO WITH THE SIMILAR DIRECTIONS. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED. THE APPEAL OF THE REVENUE AND THE CROSS-O BJECTION FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST JANUARY, 2019. SD/ - (BEENA PILLAI) JUDICIAL MEMBER SD/ - (B.R BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED, 21ST JANUARY, 2019. / VMS / COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE. IT(TP)A NO.375, 504/BANG/2015 CO. 125/BANG/2015 PAGE 10 OF 10 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR.P.S .. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE.. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DICTATION NOTE ENCLOSED DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. .. 14. DICTATION NOTE ENCLOSED