Steelwedge Technologies Private Limited, Hyderabad, Hyderabad V. DCIT, Circle-3(2), Hyderabad, Hyderabad

ITA 385/HYD/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6049 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-05-2018
• Assessment Year: 2012-2013
• Appeal Filed On: 03-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K SRINIVAS REDDY
• Assessee Lawyers: SAMPATH RAGHUNATHAN
• Keywords: Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

ITA NO 385 OF 2017 STEELWEDGE TECHNOL OGIES PVT LTD HYDERABAD. PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.385/HYD/2017 (ASSESSMENT YEAR: 2012-13) STEELWEDGE TECHNOLOGIES PVT LTD, MADHAPUR HYDERABAD PAN: AACCV4015B VS DY. COMMISSIONER OF INCOME TAX, CIRCLE 3(2), KONDAPUR HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI SAMPATH RAGHUNATHAN FOR REVENUE : SHRI K. SRINIVAS REDDY, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2012-13 AGAIN ST THE ASSESSMENT ORDER DATED 30.12.2016 PASSED U/S 14 3(3) R.W.S. 144C(13) OF THE I.T. ACT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY, ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT, IT CONSULTING AND IT ENABLED SOLUTIONS, FILED ITS RETURN OF INCOM E FOR THE A.Y 2012-13 ON 29.11.2012, DECLARING A TOTAL INCOME OF RS.1,90,09,809 UNDER THE NORMAL PROVISIONS AND RS.1 ,81,39,584 UNDER THE MAT PROVISIONS. DURING THE ASSESSMENT PRO CEEDINGS U/S 143(3) OF THE ACT, THE AO OBSERVED THAT THE ASS ESSEE HAS DATE OF HEARING: 08.05 . 201 8 DATE OF PRONOUNCEMENT: 06.06.2018 ITA NO 385 OF 2017 STEELWEDGE TECHNOL OGIES PVT LTD HYDERABAD. PAGE 2 OF 4 ENTERED INTO AN INTERNATIONAL TRANSACTION WITH ITS AE FOR PROVIDING OF SOFTWARE DEVELOPMENT SERVICES. THEREFORE, A REF ERENCE WAS MADE TO THE TPO FOR DETERMINATION OF THE ARMS LENG TH PRICE OF THE SAID INTERNATIONAL TRANSACTION. 3. BEFORE THE TPO, THE ASSESSEE FURNISHED ITS T.P. STUDY WHEREIN IT HAD ADOPTED 12 COMPANIES AS COMPARABLE, OUT OF WHICH THE AO HAS ACCEPTED ONLY 7 COMPANIES AS COMPARABLE. THEREAFTER, HE PROCEEDED TO CONDUCT AN INDEPENDENT SEARCH AND A RRIVED AT THE FINAL 13 COMPANIES AS COMPARABLE TO THE ASSESSE E AND ARRIVED AT THE AVERAGE MARGIN OF 20.84%. AFTER ALLOWING THE WORKING CAPITAL ADJUSTMENT, THE ALP WAS ARRIVED AT 17.93% A S AGAINST THE ASSESSEES MARGIN OF 10.54%. THEREFORE, THE TPO PRO POSED AN ADJUSTMENT OF RS.1,19,94,159. CONSEQUENTLY, THE AO PROPOSED THE DRAFT ASSESSMENT ORDER AGAINST WHICH THE ASSESS EE PREFERRED ITS OBJECTIONS TO THE DRP. THE DRP ACCEPTED THE ASS ESSEES CONTENTION THAT OUT OF THE TOTAL OF 13 COMPARABLES, 9 COMPANIES ARE NOT COMPARABLE TO THE ASSESSEE. HOWEVER, IT OB SERVED THAT THE MEAN MARGIN OF THE BALANCE 4 COMPANIES COMES TO 21. 37% AS AGAINST THE MEAN MARGIN OF 20.05% COMPUTED BY THE T PO BASED ON 13 COMPARABLES. THEREFORE, IT WAS OF THE OPINION THAT THE LARGER SET OF THE COMPARABLES TAKES CARE OF THE DIFFERENCE S, IF ANY. THE DRP THUS, HAS UPHELD ALL COMPARABLES TAKEN BY THE T PO, AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE DRP, HAVING COME TO THE CONCLUSION THAT 9 COMPA NIES SELECTED ARE NOT COMPARABLE TO THE ASSESSEE, OUGHT NOT TO HAVE ITA NO 385 OF 2017 STEELWEDGE TECHNOL OGIES PVT LTD HYDERABAD. PAGE 3 OF 4 UPHELD ALL THE COMPARABLES SELECTED BY THE TPO. HE SUBMITTED THAT EVEN OUT OF THE BALANCE 4 COMPANIES, THE ASSES SEE IS CHALLENGING THE COMPARABILITY OF TWO COMPANIES AND ONLY THE BALANCE OF THE 2 COMPANIES SHOULD BE CONSIDERED FOR THE ALP DETERMINATION. 5. THE LEARNED DR WAS ALSO HEARD. HE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE DRP HAS EXAMINED AND FO UND THAT 9 OUT OF THE TOTAL OF 13 COMPARABLES SELECTED BY THE TPO ARE FUNCTIONALLY DISSIMILAR TO THE ASSESSEE. HAVING HEL D SO, IT IS NOT PROPER AND CORRECT ON THE PART OF THE DRP TO UPHOLD THE LARGER SET OF 13 COMPARABLES SELECTED BY THE TPO. IN CASE THEY WERE OF THE OPINION, THAT A LARGER SET OF COMPARABLES IS REQUIR ED, THE DRP OUGHT TO HAVE REFERRED THE MATTER TO THE TPO TO CON DUCT FRESH SEARCH AND ADOPT MORE NUMBER OF COMPARABLE COMPANIE S. WE FIND THAT OUT OF THE 4 COMPANIES, THE ASSESSEE IS C HALLENGING THE COMPARABILITY OF PERSISTENT SYSTEMS LTD AND L & T I NFOTECH LTD. WE FIND THAT THE ASSESSEE ITSELF HAS TAKEN PERSISTE NT SYSTEMS LTD AS ONE OF THE COMPARABLE AND HAD NOT RAISED ANY OBJ ECTION AGAINST THE SAME BEFORE THE DRP. THEREFORE, IT CANN OT NOW TURNAROUND AND CHALLENGE THE SAME BEFORE US, WITHOU T RAISING A SPECIFIC GROUND OF APPEAL. THAT LEAVES US ONLY TO D EAL WITH ONLY ONE COMPARABLE I.E. L&T INFOTECH LTD. AT THIS STAGE , THE LEARNED COUNSEL FOR THE ASSESSEE ALSO AGREED WITH THE SUGGE STION OF THE BENCH THAT IN ORDER TO DETERMINE THE ALP, THE TPO M AY CONDUCT ITA NO 385 OF 2017 STEELWEDGE TECHNOL OGIES PVT LTD HYDERABAD. PAGE 4 OF 4 FRESH SEARCH AND FOR THIS PURPOSE, THE ISSUE OF ADO PTING SOME MORE COMPANIES IS COMPARABLES ARE REFERRED TO THE T PO. THE LEARNED DR ALSO HAD NO OBJECTION TO THIS SUGGESTION BY THE BENCH. IN VIEW OF THE SAME, WE DEEM IT FIT AND PROPER TO D IRECT TO THE TPO TO CONDUCT SEARCH AFRESH SOME OTHER COMPARABLE COMP ANIES TO ARRIVE AT THE ALP. NEEDLESS TO MENTION THAT THE ASS ESSEE SHALL BE GIVEN A FAIR OPPORTUNITY OF HEARING. 7. IN THE RESULT, ASSESSEES APPEAL IS TREATED AS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH JUNE, 2018. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 6 TH JUNE, 2018. VINODAN/SPS COPY TO: 1 M/S.STEELWEDGE TECHNOLOGIES PVT. LTD, LEVEL-4, BU ILDING NO.21 (COLRUYT IT) MIND SPACE, RAHEJA IT PARK, HITEC CITY , MADHAPUR, HYDERABAD 500081 2 DCIT, CIRCLE 3(2), SIGNATURE TOWERS, OPP: BOTANIC AL GARDEN, KONDAPUR, SERLINGAMPALLI (M) HYDERABAD 500090 3 DRP-1, G-18 CENTRAL REVENUE BUILDING, QUEENS ROAD , BENGALURU 560001 4 DIRECTOR OF INCOME TAX, (INTERNATIONAL TAXATION), HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER