ITO, New Delhi V. M/s. CSAV Group (India) Pvt. Ltd., Gurgaon

ITA 4184/DEL/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69526 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 04-11-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 09-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: YOGESH KUMAR VERMA
• Keywords: Transfer pricing; International transaction
• Section: 92C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I NEW DELHI BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI J. S. REDDY, ACCOUNTANT MEMBER I.T.A. NO. 4184/DEL/2010 ASSESSMENT YEARS: 2005-06 ITO VS. M/S CSAV GROUP (I) P. WARD 3(4), LTD., 11 TH FLOOR, BUILDING NEW DELHI. NO.-9, DLF CYBER, GURGAON-122002 PAN: AAACC3324L (APPELLANT) (RESPONDENT) C.O. NO. 343/DEL/2010 (IN I.T.A. NO. 4184/DEL/2010) ASSESSMENT YEARS: 2005-06 M/S CSAV GROUP (I) P. VS. ITO LTD., 11 TH FLOOR, BUILDING NO.-9, WARD 3(4), DLF CYBER, NEW DELHI. GURGAON-122002 PAN: AAACC3324L (APPELLANT) (RESPONDENT) REVENUE BY : SHRI YOGESH KUMAR VERMA, CIT. DR. ASSESSEE BY : SHRI. ROHIT TIWARI, CA. ORDER PER BENCH : THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGA INST THE ORDER OF CIT (APPEALS) XX, NEW DELHI, DATED 08.07.2010 FOR T HE AY 2005-06, ON THE FOLLOWING GROUNDS: 2 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER OF THE LD. CIT (A) IS WRONG, PERVERSE, ILLEGA L AND AGAINST THE PROVISIONS OF LAW WHICH IS LIABLE TO BE SET ASI DE. 2. THE LD. CIT (A) HAS ERRED ON FACTS AND IN LAW IN DELETING ADDITION OF RS.71,12,579/- ON ACCOUNT OF ARMS LENG TH PRICE AS THE ACCEPTANCE OF M/S EPICENTER TECHNOLOGIES (P) LT D., AS COMPARABLE HAS BEEN TAKEN UP BY LD. CIT (A) ON PURE PREMISE OF UNDOCUMENTED SATISFACTION. 2. THE ASSESSEE HAS FILED A CROSS-OBJECTION ON THE FOLLOWING GROUNDS: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, ON THE BASIS OF THE ANNUAL REPORT WHICH WAS DULY FILED WITH THE LD. CIT (A), EPICENTER TECHNOLOGIES PVT. LTD. OUGHT TO BE CONSIDERED IN THE FINAL COMPARABLE COMPANIES SET. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHILE COMPUTING THE OPERATING PROFIT MARGIN OF SPAN CO TELESYSTEMS LTD., THE LD. CIT (A) ERRED IN NOT CONS IDERING THE DOMESTIC CALL CENTRE SEGMENT IN SPITE OF THE FACT THAT THE COMPANY IS RENDERING IT-ENABLES SERVICES UNDER THIS SEGMENT. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, CITIZEN INFOLINE LIMITED OUGHT TO BE CONSIDERED IN THE FINAL COMPARABLE COMPANIES SET IN VIEW OF THE FACT THAT T HE COMPANY IS FUNCTIONALLY COMPARABLE AND CLEARED ALL QUANTITA TIVE FILTERS APPLIED BY THE TRANSFER PRICING OFFICER (LD. TPO). 4. THAT THE LD. CIT (A) ERRED IN NOT ADJUDICATING O N THE FACT THAT THE APPLICATION OF VARIOUS ARBITRARY, ERRONEOUS AND IRRATIONAL QUANTITATIVE AND QUALITATIVE FILTERS BY THE LD. TP O TO SCREEN 3 OUT COMPANIES AND ACHIEVE THE COMPARABLE SET DESIGN ED TO MAKE AN ADJUSTMENT TO THE ASSESSEES INTERNATIONAL TRANSACTION IS INCORRECT AND BAD IN LAW. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE SEARCH STRATEGY AND THE COMPARABLE COMPANY SET / DA TA USED BY THE ASSESSEE FOR BENCHMARKING ITS VESSEL PLANNING & SUPPORT SERVICES AND BACK-OFFICE SUPPORT SERVICES TRANSACTI ONS IN ITS TRANSFER PRICING DOCUMENTATION REPORT FOR THE YEAR OUGHT TO BE CONSIDERED. 6. (A) THAT ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE BENEFIT OF A WORKING CAPITAL ADJUSTMENT ON ACCOUNT OF DIFFERENCES BETWEEN WORKING CAPITAL REQUIREMENTS OF THE ASSESSEE VIS--VIS THE FINAL SELECTED COMPANIES IS ALLOWABLE TO THE ASSESSEE. (B) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE BENEFIT OF A RISK ADJUSTMENT ON ACCOUNT OF DIFFERENCES BETWEEN THE RISKS ASSUMED BY THE ASSESSEE VIS--VIS THE FINAL SELECTED COMPANIES IS ALLOWABLE TO THE ASSESSEE. 7. THAT THE BENEFIT OF THE +/- 5% RANGE FROM THE AR ITHMETICAL MEAN MARGIN OF COMPARABLE COMPANIES IS ALLOWABLE TO THE ASSESSEE AS PROVIDED IN PROVISO TO 92C(2) OF THE INCOME-TAX ACT 1961. 8. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME-TAX APPEALS (LD. CIT (A) ER RED IN HOLDING THAT CURRENT YEAR (I.E. FY 2004-05) FINANCI AL INFORMATION OF COMPARABLE COMPANIES IS TO BE USED F OR COMPARABILITY ANALYSIS, WHICH WAS NOT AVAILABLE TO THE ASSESSEE COMPANY AT THE TIME OF FILLING ITS RETURN OF INCOME . 4 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN NOT ADJUDICATING ON THE FACT T HAT THE ACTIVITIES OF VESSEL PLANNING & SUPPORT SERVICES AN D BACK- OFFICE SUPPORT SERVICES HAVE DISTINCT FUNCTION, ASS ET AND RISK PROFILE AND THUS SHOULD NOT BE AGGREGATED FOR THE P URPOSE OF DETERMINATION OF ARMS LENGTH PRICE. 3. WE HAVE HEARD MR. YOGESH KUMAR VERMA, LD. CIT DR ON BEHALF OF THE REVENUE AND SHRI ROHIT TIWARI, THE LD. CA ON BE HALF OF THE ASSESSEE. 4. THE ISSUE BEFORE US IS WHETHER THE FIRST APPELLA TE AUTHORITY WAS RIGHT IN ACCEPTING M/S EPICENTER TECHNOLOGIES (P) LTD. AS A COMPARABLE, FOR THE PURPOSE OF DETERMINATION OF ARMS LENGTH PRICE. THE REVENUE DISPUTES, ACCEPTANCE OF COMPARABLE M/S EPICENTER TECHNOLOGIES (P) LTD. 5. MR. ROHIT TIWARI HAS MADE THE FOLLOWING WITHOUT PREJUDICE ARGUMENT PAGE 5 PARA 25 OF THE WRITTEN SUBMISSIONS. 25. FURTHER, WITHOUT PREJUDICE TO THE ASSESSEES C ONTENTIONS OF NOT EXCLUDING EPICENTER TECHNOLOGIES PVT. LTD. FROM THE FINAL COMPARABLE COMPANIES, EVEN IF THE SAID COMPANY IS EXCLUDED, TH E AVERAGE OPERATING MARGIN ARRIVED AT WOULD BE 19.46% AS IS D EMONSTRATED BY TABLE 5 BELOW. AS MENTIONED ABOVE, THE ASSESSEES O P/TC MARGIN AS COMPUTED BY THE LD. TPO AT ENTITY LEVEL IS 14.99 PE RCENT. ON APPLICATION OF THE +/- 5% RANGE PRESCRIBED IN THE P ROVISO TO SECTION 92C (2) OF THE INCOME TAX ACT, 1961, THE ASSESSEE M EETS THE ARMS LENGTH STANDARD. 5 [PLEASE NOTE THAT THE ASSESSEE HAS COMPUTED THE +/- 5% RANGE BASED ON THE OLD PROVISO TO SECTION 92C (2) OF THE ACT, ( I.E. PROVISO BEFORE THE AMENDMENT MADE IN FINANCE ACT 2009). IN THIS RE GARD, EMPHASIS IS PLACED ON THE CBDT CIRCULAR NO. 05/2010 DATED JU NE 3, 2010 READ WITH CORRIGENDUM TO CIRCULAR NO. 05/2010 STIPULATIN G THAT THE AMENDMENT TO PROVISO TO SEC 92C(2) APPLIES TO ALL C ASES WHICH ARE PENDING BEFORE THE TPO ON OR AFTER OCTOBER 1, 2009. IT IS PERTINENT TO NOTE THAT THE TP ORDER OF THE ASSESSEE WAS PASSED B Y THE LD. TPO DATED SEPTEMBER 9, 2008]. TABLE 6: ARMS LENGTH MARGIN EXCLUDING EPICENTER S. NO. COMPANY NAME OP / TC 1. FORTUNE INFOTECH 15.52% 2. SPANCO TELESYSTEMS (INTERNATIONAL BPO SEGMENT) 23.39% MEAN 19.46% TABLE 6.1: COMPUTATION OF ARMS LENGTH PRICE AS PER THE PROVISO TO SECTION 92C (2) OF THE INCOME TAX ACT, 1961. PARTICULARS AMOUNT (INR) TOTAL REVENUE BOOKED BY ASSESSEE (A) 67,948,823 TOTAL COST BOOKED BY ASSESSEE (B) 59,089,508 OPERATING PROFIT AT 19.46% (C) 11,498,818 OPERATING PROFIT BOOKED (D) 8,859,315 DIFFERENCE (E) = (C)-(D) 2,639,503 ARMS LENGTH PRICE (ALP) (F) = (A)+(E) 70,588,326 105% OF THE ALP 74,117,742 95% OF THE ALP 67,058,909 6. THE LD. DR MR. YOGESH KUMAR VERMA DID NOT DISPUT E THESE CONTENTIONS OF THE ASSESSEE. UNDER THESE CIRCUMSTAN CES, WE FIND THAT NO 6 USEFUL PURPOSE WILL BE SERVED BY ADJUDICATING THE N UMEROUS CONTENTIONS RAISED BY BOTH THE PARTIES, ON THE ISSUE AS TO WHET HER M/S EPICENTER TECHNOLOGIES (P) LTD IS TO BE TAKEN AS A COMPARABL E OR NOT FOR THE REASON THAT INCLUSION OR EXCLUSION OF THE COMPARABLE M/S EPICENTER TECHNOLOGIES (P) LTD., WOULD NOT MATERIALLY EFFECT THE ARMS LE NGTH PRICE DETERMINED. THUS WE DISMISS THE APPEAL OF THE REVENUE ON THE SO LE GROUND THAT, IT WOULD BE AN ACADEMIC EXERCISE TO ADJUDICATE THE SAID ISSU E. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED. 7. COMING TO THE CROSS-OBJECTIONS, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT, IN VIEW OF THE ABOVE DECISION IN TH E ASSESSEES APPEAL, HE WOULD NOT PRESS THE SAME. IN THE RESULT THE CROSS-O BJECTIONS ARE DISMISSED AS NOT PRESSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27/11/2013. SD/- SD/- (DIVA SINGH ) (J. S. REDDY) JUDICIAL MEMBER ACCOUNTANT ME MBER DATED: 27/11/2013 *AK VERMA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR