Dover India Private Limited, Bangalore V. Dy.CIT, Circle 1(2), Pune

ITA 408/PUN/2013

• Counselvise Citation: 40824514 RSA 2013
• Duration Of Justice: 2 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 08-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VERMA
• Keywords: Transfer pricing; International transaction
• Section: 92C; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE M S SUSHMA CHOWLA , JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 408 /PN/201 3 ITA NO. 408 /PN/201 3 ASSESSMENT YEAR: 200 8 - 09 DOVER INDIA PVT. LTD., BAGMANE LAUREL, 1 ST FLOOR, C' BLOCK, BAGMANE T ECH PARK, C.V. RAMAN NAGAR, BANGALORE 560093 . APPELLANT PAN: A A ACI3920N VS. VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 1 (2) , PUNE . RESPONDENT A PPELLANT BY : S HRI KISHOR PHADKE RESPONDENT BY : SMT. M.S. VERMA, CIT DATE OF H EARING : 2 1 - 0 5 - 201 5 DATE OF PRONOUNCEMENT : 27 - 0 5 - 201 5 ORDER ORDER PER SUSHMA CHOWLA, J M : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF DY. CIT , CIRCLE - 1( 2 ) , PUNE DATED 2 0 . 11 .201 2 RELATING TO ASSESSMENT YEAR 200 8 - 0 9 AGAINST ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME - TAX ACT , 1961 . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - ALL THE GROUNDS OF APPEALS ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER 1. GENERAL GROUNDS 1.1 THE L OWER AUTHORITIES HAVE ERRED IN LAW AND IN FACTS IN TAKING BPLR OF 10% INSTEAD OF 14% FOR COMPUTING WORKING CAPITAL ADJUSTMENT IN BOTH THE FUNCTIONS. 1.2 THE TPO, AO & DRP ERRED IN LAW AND ON FACTS IN NOT GRANTING BENEFIT OF PROVISO TO SECTION 92C (2) OF THE I TA, 1961 THOUGH SPECIFICALLY REQUESTED DURING THE COURSE OF HEARING. 2. FOR AUXILIARY MARKETING SUPPORT SERVICES : - THE LEARNED DRP HAVE 2. FOR AUXILIARY MARKETING SUPPORT SERVICES : - THE LEARNED DRP HAVE ERRED IN LAW AND ON FACTS IN DETERMINING THE ARM'S LENGTH PRICE (ALP) OF THE APPELLANT'S INTERNATIONAL TRANSACTIONS FO R AUXILIARY MARKETING SUPPORT SERVICES AT RS. 3,04,00,495/ - (INSTEAD OF RS.2,84,80,828) BY ADOPTING A OPERATING MARGIN OF 16.58% INSTEAD OF THE APPELLANT'S OPERATING MARGIN OF 9.22% RESULTING IN ADDITION OF RS . 1,919,667/ - . ITA NO . 408 /PN/20 1 3 DOVER INDIA PVT. LTD. 2 3. FOR DESIGN ENGINEERING SERVICE S: - THE LEARNED DRP AND TPO HAVE ERRED IN LAW AND ON FACTS IN DETERMINING THE ARM'S LENGTH PRICE (ALP) OF THE APPELLANT'S INTERNATIONAL TRANSACTIONS FOR PROVISION OF DESIGN ENGINEERING SERVICES AT RS. 1,04,56,847/ - (INSTEAD OF RS.93,99,029) BY ADOPTING A OP ERATING MARGIN OF 22.38% INSTEAD OF THE APPELLANT'S OPERATING MARGIN OF 10% RESULTING IN ADDITION OF RS . 1,057,818. OPERATING MARGIN OF 10% RESULTING IN ADDITION OF RS . 1,057,818. 4. THE APPELLANT CRAVES LEAVES TO ADD, MODIFY, ALTER, AMEND, OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL HEREIN AND TO SUBMIT SUCH STAT EMENTS, DOCUMENTS AND PAPERS AS MAY BE CONSIDERED NECESSARY EITHER AT OR BEFORE THE APPEAL HEARING. 3. THE ISSUE ARISING IN THE PRESENT APPEAL IS AGAINST THE ADDITION MADE ON ACCOUNT OF DETERMINATION OF ARM'S LENGTH PRICE OF ASSESSEES INTERNATIONAL TRANS ACTION. 4. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT IN CASE THE COMPARABLES SELECTED BY THE TRANSFER PRICING OFFICER ( IN SHORT TPO ) ARE EXCLUDED AS HAS BEEN FOUND TO BE NOT COMPARABLES BY THE TRIBUNAL IN THE EARLIER YEAR , THEN THE MARGINS OF COMPARABLES AS AGAINST THE MARGINS SHOWN BY THE ASSESSEE WOULD BE WITHIN +/ - 5% RANGE AND HENCE, AT ARM'S LENGTH PRICE. IT IS FURTHER POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE DRP HAD FOLLOWED ITS EARLIER ORDER IN UPHOLDING THAT ADJUSTMENT NEEDS TO BE MADE TO THE VALUE OF INTERNATIONAL TRANSACTION S ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES , IN VIEW OF THE MARGINS SHOWN BY THE ASSESSEE BEING NOT COMPARABLES WITH THE MAR GINS OF THE SAID COMPARABLES SELECTED BY THE ASSESSING OFFICER. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT IN CASE THE COMPARABLES SELECTED BY THE TPO ARE EXCLUDED, THEN ASSESSEES MARGINS WOULD BE COMPARABLES TO THE M ARGINS OF THE COMPARABLES AND THERE IS NO NEED TO ADJUDICATE THE ISSUE RAISED AGAINST WORKING CAPITAL ADJUSTMENT TO BE ALLOWED IN THE HANDS OF ASSESSEE AND IN THE HANDS OF COMPARABLES. 5 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELI ANCE ON THE ORDERS OF AUTHORITIES BELOW. RELI ANCE ON THE ORDERS OF AUTHORITIES BELOW. 6 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. BRIEFLY, IN THE FACTS OF THE PRESENT CASE , THE ASSESSEE WAS ENGAGED IN RENDERING SOFTWARE ITA NO . 408 /PN/20 1 3 DOVER INDIA PVT. LTD. 3 SERVICES I.E. SOFTWARE SERVICE FUNCTIONS, MARKETING SUPPORT SERVICE F UNCTIONS, DISTRIBUTION FUNCTIONS AND MANUFACTURING FUNCTIONS. THE ASSESSEE HAD ENTERED INTO VARIOUS INTERNATIONAL TRANSACTION S WITH ITS AES, WHICH ARE TABULATED AT PAGE 2 OF THE TPO ORDER. THE TPO PROPOSED TP ADJUSTMENT UNDER MARKING SUPPORT SER VICE FUNCTIONS AND PROVISION OF DESIGN ENGINEERING SERVICES. THE ASSESSEE ADMITTEDLY HAD APPLIED TNMM METHOD FOR BOTH THE MARK ET ING SUPPORT FUNCTIONS AND PROVISION OF DESIGN ENGINEERING SERVICES AND APPLYING THE MARGINS OF COMPARABLES SELECTED BY IT, HAD FOUND THE SAME TO BE AT ARM'S LENGTH PRICE. HOWEVER, THE TPO MADE A FRESH STUDY AND PROPOSED NEW COMPARABLES TO BE APPLIED IN BOTH THE SEGMENTS OF THE BUSINESS CARRIED ON BY THE ASSESSEE. THE TPO ALSO APPLIED TN M M METHOD TO DETERMINE THE MARGINS OF COMPA RABLES AND PROPOSED ADDITION OF RS. 46 , 0 8 ,59 2 / - AND ALSO PROPOSED ADJUSTMENT OF RS.11,29,593/ - TO THE DESIGN ENGINEERING SERVICES. THE DRP, IN TURN FOLLOWING THE FINAL SET OF COMPARABLES AND THE BENCHMARKING AS DONE IN ASSESSMENT YEAR 2006 - 07 DIRECTED THE ASSESSING OFFICER TO MAKE THE ADJUSTMENT UNDER SECTION 92CA(3) OF THE ACT AFTER GIVING WORKING CAPITAL ADJUSTMENT. THE ASSESSING OFFICER VIDE ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C OF THE ACT, REWORKED THE ADDITION IN THE HANDS OF ASSESSEE ON ACCOU NT OF ARM'S LENGTH PRICE AFTER GIVING WORKING CAPITAL ADJUSTMENT. CONSEQUENTLY, THE ADDITION OF RS.19,19,667/ - WAS MADE WITH RESPECT TO THE INTERNATIONAL TRANSACTION S RELATING TO PROVIDING MARK ET ING SUPPORT SERVICES TO AES AND RS. 10,57,818/ - WITH RESPECT TO THE INTERNATIONAL TRANSACTION RELATING TO PROVIDING OF DESIGN ENGINEERING SEGMENT TO THE AES. 7 . THE TPO WHILE BENCHMARKING THE MARKET SUPPORT SERVICES SEGMENT HAD SELECTED THE FOLLOWING SET OF COMPARABLES: - A. PRIYA INTERNATIONAL LIMITED (INDENTING SEGMENT) B. AGRIMA CONSULTANTS INTERNATIONAL LIMITED 8 . THE DRP HOWEVER, HAD PICKED UP THE SET OF COMPARABLES AS PICKED UP IN THE EARLIER YEARS AND ALSO COMPARABLES PICKED UP BY THE TPO WHICH ARE AS UNDER: - ITA NO . 408 /PN/20 1 3 DOVER INDIA PVT. LTD. 4 A. EMPIRE INDUSTRIES LIMITED B. IL & FS ACADE MY FOR INSURANCE & FIN. LTD. C. MCS LIMITED D. NATIONAL SMALL INDUSTRIES CORPORATION LTD. E. TSR DARASHAW LIMITED F. PRIYA INTERNATIONAL LIMITED (INDENTING SEGMENT) F. PRIYA INTERNATIONAL LIMITED (INDENTING SEGMENT) G. AGRIMA CONSULTANTS INTERNATIONAL LIMITED 9 . THE ASSESSEE BEFORE US HAS OBJECTED T O THE SELECTION OF UNDER - MENTIONED COMPARABLES : - A. PRIYA INTERNATIONAL LIMITED (INDENTING SEGMENT) B. AGRIMA CONSULTANTS INTERNATIONAL LIMITED 1 0 . HOWEVER, DURING THE COURSE OF HEARING, THE LEARNED AUTHORIZED 1 0 . HOWEVER, DURING THE COURSE OF HEARING, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE RESTRICTED HIS OBJECTIONS TO THE INCLUSION OF A GRIMA CONSULTANTS INTERNATIONAL LIMITED . THE PLEA OF THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE US WAS THAT THE ASSESSEE WAS A BPO TYPE OF COMPANY, WHEREAS AGRIMA CONSULTANTS INTERNATIONAL LIMITED WA S A KNOWLEDGE BASED COMPANY. OUR ATTENTION WAS DRAWN TO THE WEBSITE EXTRACT OF M/S. AGRIMA CO NSULTANTS INTERNATIONAL LIMITED, WHICH IS PLACED AT PAGE 52 OF THE M/S. AGRIMA CO NSULTANTS INTERNATIONAL LIMITED, WHICH IS PLACED AT PAGE 52 OF THE PAPER BOOK, IN WHICH IT IS PROVIDED THAT AGRIMA CONSULTANTS INTERNATIONAL LIMITED WAS A N APPROV ED CONSULTANCY CONCERN TO LEADING FINANCIAL INSTITUTIONS AND W AS OFFERING ITS SERVICES IN FIELDS SUCH AS SUGAR, CEMENT, CHEMICAL ENGINEERING, POWER, ETC. THE PLEA OF THE ASSESSEE BEFORE US IN THIS REGARD WAS THAT THE SAID COMPANY WAS FUNCTIONALLY DIFFERENT FROM THE TESTED PARTY AND HENCE, THE MARGINS OF THE SAID COMPANY COULD NOT BE APPLIED TO BENCHMARK INTERNATIONAL TRANSACTIONS OF THE ASSESSEE. 1 1 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE REFERRED TO THE ORDERS OF AUTHORITIES BELOW AND POI NTED OUT THAT AGRIMA CONSULTANTS INTERNATIONAL LIMITED WAS BROADLY COMPARABLE TO THE FUNCTIONS UNDERTAKEN BY THE ASSESSEE. 12. ON THE PERUSAL OF THE RECORD AND INFORMATION FURNISHED BY THE ASSESSEE, AGRIMA CONSULTANTS INTERNATIONAL LIMITED WAS FORMED IN 1972 AND ENGAGED IN AREA SUCH AS SUGAR, CEMENT, CHEMICAL ENGINEERING, POWER TRANSMISSION, ETC, ITA NO . 408 /PN/20 1 3 DOVER INDIA PVT. LTD. 5 WHICH SERVICES ARE OFFERED TO CLIENTS IN DEVELOPING COUNTRIES. FURTHER, AGRIMA CONSULTANTS INTERNATIONAL LIMITED IS PROVIDING CONSULTANCY SERVICES TO LEADING F INANCIAL INSTITUTIONS IN AND OUTSIDE INDIA. ON THE OTHER HAND, THE ASSESSEE WAS PROVIDING MARKETING SUPPORT SERVICES TO VARIOUS GROUP ENTITIES AND THE SAME IS NOT COMPARABLE TO THE ACTIVITIES OF AGRIMA CONSULTANTS INTERNATIONAL LIMITED . WHILE BENCHMARKIN G THE INTERNATIONAL TRANSACTIONS OF TESTED PARTY AND WHILE APPLYING TN M M METHOD ENDEAVOR HAS BEEN MADE TO SELECT SUCH COMPANIES, WHICH ARE FUNCTIONALLY SIMILAR. WHERE THE COMPARABLES ARE FUNCTIONALL Y DISSIMILAR TO THE TESTED PART Y , THE MARGINS OF SUCH COM PANIES CANNOT BE UTILIZED FOR DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS CARRIED OUT BY THE TESTED PARTY. IN THE ABOVE SAID FACTS AND CIRCUMSTANCES, WE FIND NO MERIT IN THE SELECTION PROCESS CARRIED OUT BY THE TPO AND WE DIRECT THE T PO TO EXCLUDE THE MARGINS OF AGRIMA CONSULTANTS INTERNATIONAL LIMITED WHILE BENCHMARKING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS OF THE ASSESSEE AND APPLYING THE MARGINS OF OTHER COMPARABLES AS SELECTED BY DRP, DETERMINE THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS OF ASSESSEE . 13. ANOTHER OBJECTION RAISED BY THE ASSESSEE WAS AGAINST THE SELECTION OF ROLTA INDIA LIMITED , WHILE BENCHMARKING THE INTERNATIONAL TRANSACTION WITH RESPECT TO DESIGN ENGINEERING SERVICES PROVIDED BY THE ASSESSE E TO ITS AES. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE MARGINS OF ROLTA INDIA LIMITED COULD NOT BE APPLIED AS IT HAD DIFFERENT YEAR END AS AGAINST THE ASSESSEES YEAR END 31.03.2008 . THE SAID COMPANYS YEAR END WAS 30.0 6.2007 . IT WAS POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT SINCE THE DATA OF COMPARABLES CONCERNED DOES NOT CORRESPOND TO THE FINANCIAL YEAR OF THE YEAR, THE SAME WAS UN - COMPARABLE. WE FIND MERIT IN THE PLEA OF THE ASSESSEE AS EVEN THE PROVISIONS OF RULE 10B(4) OF THE INCOME - TAX RULES, 1962 PROVIDED THAT THE DATA TO BE USED IN ANALYZING THE COMPARABILITY OF AN UN - CONTROLLED TRANSACTIONS WITH AN INTERNATIONAL TRANSACTION , SHALL BE THE DATA RELATING TO THE FINANCIAL YEAR, IN W HICH THE INTERNATIONAL TRANSACTION HAD BEEN ITA NO . 408 /PN/20 1 3 DOVER INDIA PVT. LTD. 6 ENTERED INTO. IN THE PRESENT CASE, THE DATA ADOPTED BY ROLTA INDIA LIMITED DOES NOT RELATE TO THE FINANCIAL YEAR, IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN CARRIED ON BY THE ASSESSEE AND HENCE, THE SAID CO NCERN IS TO BE EXCLUDED FROM THE LIST OF COMPARABLES. SIMILAR VIEW HAS BEEN TAKEN BY PUNE BENCH OF TRIBUNAL IN PTC SOFTWARE (INDIA) PVT. LTD., VS. ACIT IN ITA NO.1605/PN/2011, RELATING TO ASSESSMENT YEAR 2007 - 08, ORDER DATED 30.04.2013. A CCORDINGLY, WE D IRECT THE ASSESSING OFFICER TO EXCLUDE ROLTA INDIA LIMITED FROM THE LIST OF COMPARABLES WHILE BENCHMARKING THE ARM'S LENGTH PRICE WITH RESPECT TO DESIGN ENGINEERING SERVICES PROVIDED TO THE AES BY THE ASSESSEE. THE ASSESSING OFFICER SHALL RE - COMPUTE THE A DJUSTMENT, IF ANY, TO BE MADE IN THE HANDS OF ASSESSEE. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. 1 4 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER P RONOUNCED ON THIS 27 TH DAY OF MAY , 201 5 . SD/ - SD/ - ( R.K. PANDA ) ( SUSHMA CHOWLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 27 TH MAY , 2015 GCVSR COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE DRP, PUNE ; 4) THE CIT CONCERNED ; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE I.T.A.T., PUNE