Citrix R & D India Pvt Ltd , Bangalore V. Assistant Commissioner of Income Tax Circle-2(1)(1), Bangalore

ITA 383/BANG/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5316 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 20-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C H SUNDAR RAO
• Assessee Lawyers: UMASHANKAR GAUTAM

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR, JUDICIAL MEMBER IT (TP) A NO.383/BANG/2017 (ASSESSMENT YEAR : 2012 13) M/S. CITRIX R & D INDIA PVT. LTD., APPELLANT PRESTIGE DYNASTY, GROUND FLOOR, 33/2, ULSOOR ROAD, BANGALORE 560042. PAN. AABCN3639C VS THE ACIT, CIRCLE 2 (1) (1), RESPONDEN T BANGALORE. ASSESSEE BY : SHRI UMA SHANKAR GAUTAM, ADVOCATE REVENUE BY : SHRI C. H. SUNDAR RAO, CIT (DR) DATE OF HEARING : 09 01 2019 DATE OF PRONOUNCEMENT : 25 01 2019 O R D E R PER A. K. GARODIA, A.M.: THIS APPEAL IS FILED BY THE ASSESSEE WHICH IS DIREC TED AGAINST THE ASSESSMENT ORDER DATED 21.12.2016 FOR A. Y. 2012 13 U/S 143 (3) R. W.S 144C AS PER THE DIRECTIONS OF DRP. 2. THIS APPEAL WAS EARLIER DECIDED BY THE TRIBUNAL AS PER ORDER DATED 06.04.2018. THEREAFTER, THE ASSESSEE FILED A M. P. CONTENDING THAT THE ISSUE REGARDING THE ASSESSEES REQUEST FOR EXCLUSION OF O NE COMPARABLE I.E. PERSISTENT SYSTEMS LIMITED WAS NOT DECIDED BY THE TRIBUNAL. IN M. P. ORDER IN M. P. NO. 164/BANG/2018 DATED 20.07.2018, THIS TRIBUNAL ORDER DATED 06.04.2018 WAS RECALLED FOR THE LIMITED PURPOSE TO DECIDE THE ISSUE ABOUT T HE REQUEST OF THE ASSESSEE FOR EXCLUSION OF ONE COMPARABLE I.E. PERSISTENT SYSTEMS LIMITED. 3. LEARNED AR OF THE ASSESSEE PLACED RELIANCE ON TH E TRIBUNAL ORDER RENDERED IN THE CASE OF ELECTRONICS ARTS GAMES (INDIA) PVT. LTD . VS. ACIT IN ITA NO. 444/HYD/2017 DATED 28.04.2017, COPY AVAILABLE ON PA GES 2494 TO 2508 OF THE PAPER BOOK AND IN PARTICULAR, OUR ATTENTION WAS DRAWN TO PARA NOS. 2.1 TO 2.8 OF THIS TRIBUNAL ORDER AND IT WAS POINTED OUT THIN THIS CASE, AT THI S COMPARABLE WAS EXCLUDED ON THIS IT(TP)A NO. 383/BANG/2017 2 BASIS THAT THIS COMPANY IS DEALING WITH THE PRODUCT S ALSO AND THIS COMPANY USES INTANGIBLE ASSETS. AS AGAINST THIS, LEARNED DR OF T HE REVENUE SUBMITTED THAT THE ANNUAL REPORT OF THIS COMPANY IS AVAILABLE ON PAGES 90 TO 256 OF THE PAPER BOOK AND IN PARTICULAR, OUR ATTENTION WAS DRAWN TO PAGE NO. 227 OF THE PAPER BOOK AND HE POINTED OUT THAT THIS COMPANY HAS REVENUE FROM SALE OF SOFTWARE SERVICES ONLY AND THERE IS NO REVENUE EARNED FROM SALE OF A PRODUCT. HE ALSO DRAWN OUR ATTENTION TO PAGE 244 OF THE PAPER BOOK AND POINTED OUT THAT IN NOTE NO. 42 FOR EARNINGS IN FOREIGN CURRENCY ALSO, IT IS STATED THAT SUCH EARNI NG IS FROM SALE OF SOFTWARE, REIMBURSEMENT OF EXPENSES, INTEREST AND OTHERS AND THERE IS NO EARNING FOR SALE OF ANY PRODUCT. HE ALSO POINTED OUT THAT ON PAGE 210 I S NOTES FORMING PART OF FINANCIAL STATEMENTS AND AS PER NOTE 1 REGARDING NATURE OF OP ERATIONS, IT IS STATED THAT THIS COMPANY IS PREDOMINANTLY ENGAGED IN OUTSOURCED SOFT WARE PRODUCT DEVELOPMENT SERVICES. HE ALSO SUBMITTED THAT ON PAGE 206 IS BAL ANCE SHEET OF THIS COMPANY AND THERE IS NO INVENTORY. HE ALSO SUBMITTED THAT ON PA GE 216 IS IDENTIFICATION OF SEGMENT AND AS PER THIS ALSO, THERE IS ONLY ONE SEG MENT I.E. OUTSOURCED SOFTWARE PRODUCT DEVELOPMENT SERVICES. HE SUBMITTED THAT IN VIEW OF THE ANNUAL REPORT OF THIS COMPANY, IT CANNOT BE SAID THAT THIS COMPANY H AS ANY PRODUCT AND THEREFORE, INSTEAD OF FOLLOWING ANY EARLIER TRIBUNAL ORDER, TH E ISSUE SHOULD BE DECIDED AFRESH KEEPING IN MIND THE ANNUAL REPORT OF THAT COMPANY. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIN D THAT THE ISSUE REGARDING THE EXCLUSION OF PERSISTENT SYSTEMS LIMITED WAS DEC IDED BY THE TRIBUNAL AS PER PARA 2.1 TO 2.8 ON PAGES 9 TO 11 OF THIS TRIBUNAL ORDER AVAILABLE ON PAGES 2502 TO 2504 OF THE PAPER BOOK. FOR READY REFERENCE, WE REPRODUCE T HESE PARAS AS UNDER:_ 2. PERSISTENT SYSTEMS LTD.: 2.1 OBJECTING TO THE AFORESAID COMPANY AS COMPARABL E, THE AR OF THE ASSESSEE SUBMITTED THAT THIS COMPANY HAS HAD EXTRA ORDINARY EVENTS IN THE NATURE OF MERGER IN THIS YEAR IN THE NATURE OF ACQUISITIONS. IT IS SUBMITTED THAT THIS COMPANY IS INVOLVED IN DEVELOPM ENT OF PRODUCTS NAMELY EMEE & KLISMA FOR WHICH SIGNIFICANT R&D IS A LSO BEING INCURRED. IT IS SUBMITTED THAT THIS COMPANY IS ALSO INVOLVED IP-LED BUSINESS (SOFTWARE PRODUCTS). IT IS SUBMITTED THAT THIS COMPANY DERIVES SIGNIFICANT REVENUE FROM EXPORT OF SOFTWARE SERVICE S AND PRODUCTS, FOR WHICH NO SEGMENTAL IS AVAILABLE AND THE COMPANY IS ALSO OWNING SIGNIFICANT INTANGIBLE ASSETS. HE SUBMITTED THAT IN THE FOLLOWING CASES THIS COMPANY WAS REJECTED AS COMPARABLE: 1. CIT VS. INTOTO SOFTWARE INDIA PVT. LTD., IITTA N O. 233 OF 2014, HIGH COURT OF TELENGANA AND AP. 2. ALCATEL LUCENT INDIA LTD. VS. DCIT, ITA NO. 6856 /DEL/2015 IT(TP)A NO. 383/BANG/2017 3 3. SYMANTEC SOFTWARE AND SERVICES INDIA PVT. LTD. V S. DCIT, ITA NO. 614/MDS/2016 2.2 LD. DR RELIED ON THE ORDERS OF REVENUE AUTHORIT IES AND FURTHER SUBMITTED THAT IT IS OBSERVED BY DRP, THIS COMPANY HAS NOT CHARGED THE R&D EXPENSES TO P&L A/C. SHE ALSO SUBMITTED THA T IP LED BUSINESSES ARE SIMILAR TO SOFTWARE SERVICES AND ALS O SIMILAR TO THE BUSINESS CARRIED ON BY THE ASSESSEE. SHE SUBMITTED THAT THE PRESENCE OF IPS WILL NOT HAVE ANY IMPACT. 2.3 CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL FACTS ON RECORD. WE FIND THAT THE COORDINA TE BENCH OF ITAT CHENNAI BENCH IN THE CASE OF M/S SYMANTEC SOFTWARE AND SERVICES INDIA PVT. LTD. (SUPRA) HELD AS UNDER: 17.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS ON RECORD THAT THIS COMPANY I.E. PERSISTENT SYSTEMS LTD. IS ENGAGED IN PRODUCT DEVELOPMENT AND PRODUCT DESIGN S ERVICES WHILE THE ASSESSEE IS A SOFTWARE DEVELOPMENT SERVICES PRO VIDER. WE FIND THAT, AS SUBMITTED BY THE ASSESSEE, THE SEGMENTAL D ETAILS ARE NOT GIVEN SEPARATELY. THEREFORE, FOLLOWING THE PRINCIPL E ENUNCIATED IN THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD., (SUPRA) THAT IN THE A BSENCE OF SEGMENTAL DETAILS/INFORMATION A COMPANY CANNOT BE T AKEN INTO ACCOUNT FOR COMPARABILITY ANALYSIS, WE HOLD THAT TH IS COMPANY I.E. PERSISTENT SYSTEMS LTD. OUGHT TO BE OMITTED FROM TH E SET OF COMPARABLES FOR THE YEAR UNDER CONSIDERATION. IT IS ORDERED ACCORDINGLY. 2.4 IN VIEW OF THE ABOVE DECISION OF THE ITAT CHENN AI BENCH AND ALSO AR OF THE ASSESSEE BROUGHT TO OUR NOTICE THAT THIS COMPANY PERSISTENT SYSTEMS LTD. OPERATING WITH THE HELP OF IP SOLUTION S LIKE EMEE AND KLISMA. THE SAME WAS DECLARED BY THE COMPANY IN ITS SIGNIFICANT EVENT IN THE AREA OF RESEARCH AND DEVELOPMENT IN PA GE 964 OF THE PAPER BOOK. FURTHER, SHE BROUGHT TO OUR NOTICE THAT THIS COMPANY HAS CARRIED ON RESEARCH AND DEVELOPMENT ACTIVITIES TO S UPPORT THAT SHE SUBMITTED THE DETAILS OF EXPENDITURE IN CAPITAL AND REVENUE, WHICH ARE GIVEN IN PAGE 966 OF THE PAPER BOOK. 2.5 FURTHER, SHE BROUGHT TO OUR NOTICE THAT THE COM PANY HAS TAKEN A CONSTANT DECISION ON INVESTING IN NEW IP SOLUTIONS, WHICH HAS GIVEN GOOD REWARDS IN MANY FOLDS. FURTHER, SHE BROUGHT TO OUR NOTICE THAT THE COMPANY HAS ENGAGED IN PROVIDING OUTSOURCED SOF TWARE PRODUCT DEVELOPMENT SERVICES AND TECHNOLOGY SOLUTIONS TO IN DEPENDENT SOFTWARE VENDORS (ISVS) AND ENTERPRISES. IT IS SUB MITTED THAT THIS COMPANY DERIVES SIGNIFICANT PORTIONS OF ITS REVENUE FROM EXPORT OF SOFTWARE SERVICES AND PRODUCTS. 2.6 LD. AR BROUGHT TO OUR NOTICE THAT NOTES FORMING PART OF FINANCIAL IT(TP)A NO. 383/BANG/2017 4 STATEMENTS IN RELATION TO REVENUE RECOGNITION, THE COMPANY HAS DECLARED THAT REVENUE FROM LICENSING OF PRODUCT REC OGNIZED ON DELIVERY OF PRODUCTS. IT SHOWS THAT THE COMPANY IS DEALING WITH THE PRODUCT ALSO. FURTHER, SHE BROUGHT TO OUR NOTICE TH AT THIS COMPANY USES INTANGIBLE ASSETS (REFER PAGE 1047 OF PAPER BO OK). 2.7 IN CONTINUATION OF THE ABOVE SUBMISSIONS, LD. A R ALSO BROUGHT TO OUR NOTICE THAT THIS COMPANY HAS DECLARED SEGMENTAL REPORT BASED GEOGRAPHICAL LOCATION OF CUSTOMERS INSTEAD OF INDUS TRIAL VERTICAL SEGMENTATION I.E. BASED ON SERVICES AND PRODUCT. 2.8. AFTER CONSIDERING THE FACTS ON RECORD, IN OUR VIEW, THIS COMPANY I.E. PERSISTENT SYSTEMS LTD. CANNOT BE A COMPARABLE COMPANY TO THE ASSESSEE COMPANY. ACCORDINGLY, THIS COMPANY IS DIRE CTED TO BE REMOVED FROM THE LIST OF COMPARABLE COMPANIES. 5. FROM THESE PARAS OF THIS TRIBUNAL ORDER AS REPRO DUCED ABOVE, IT IS SEEN THAT APART FROM THIS SUBMISSION OF THE ASSESSEE THAT THI S COMPANY IS ENGAGED IN PRODUCTS ALSO, THIS WAS ALSO A SUBMISSION THAT THIS COMPANY HAS HAD EXTRA ORDINARY EVENTS IN THE NATURE OF MERGER IN THIS YEAR IN THE NATURE OF ACQUISITIONS. VARIOUS ARGUMENTS OF THE LEARNED DR OF THE REVENUE WERE DULY NOTED BY TH E TRIBUNAL IN THAT CASE ALSO I.E. FINANCIAL STATEMENT IN RELATION TO REVENUE RECOGNIT ION ETC. CONSIDERING THE FACTS IN ITS ENTIRETY, WE FIND NO REASON OR BASIS TO DISREGARD T HIS TRIBUNAL ORDER CITED BY THE LEARNED AR OF THE ASSESSEE AS REQUESTED BY THE LEAR NED DR OF THE REVENUE. HENCE, WE FOLLOW THIS TRIBUNAL ORDER AND DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DA TE MENTIONED ON THE CAPTION PAGE. SD/- SD/- (LALIET KUMAR) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTA NT MEMBER BANGALORE, DATED, THE 25 TH JANUARY, 2019. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.