Hewlett Packard Global Soft Pvt. Ltd., V. DCIT,

ITA 435/BANG/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9452 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 27-07-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 01-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL

Judgement Text

IT(TP)A NO. 435,436,471 & 472/B/2013 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER IT(TP)A NO. 435/B/2013 ASSESSMENT YEAR 2008 09 THE DCIT, CIRCLE 11 (4), BANGALORE VS M/S HEWLETT PACKARD GLOBALSOFT PVT.LTD, TH CONSULTING (INDIA ) PRIVATE LIMITED, 39/40, ELECTRONIC CITY, PHASE II, HOSUR ROAD, BANGALORE 560100. PAN AAACD4078L (ERSTWHILE AACCT5471F) IT(TP)A NO.436/B/2013 (ASSESSMENT YEAR 2008 09) THE DCIT, CIRCLE 11 (4), BANGALORE VS M/S HEWLETT PACKARD GLOBALSOFT PVT. LTD, RELQ SOFTWARE PRIVATE LIMITED, 39/40, ELECTRONIC CITY, PHASE II, HOSUR ROAD, BANGALORE 560100. PAN AAACD4078L (ERSTWHILE AAACR9468C) IT(TP)A NO. 471/B/2013 (ASSESSMENT YEAR 2008 09) M/S HEWLETT PACKARD GLOBALSOFT PVT.LTD, TH CONSULTING (INDIA ) PRIVATE LIMITED, 39/40, ELECTRONIC CITY, PHASE II, HOSUR ROAD, BANGALORE 560100. PAN AAACD4078L (ERSTWHILE AACCT5471F) VS THE DCIT, CIRCLE 11 (4), BANGALORE IT(TP)A NO.472/B/2013 (ASSESSMENT YEAR 2008 09) M/S HEWLETT PACKARD GLOBALSOFT PVT.LTD., RELQ SOFTWARE PRIVATE LIMITED, 39/40, ELECTRONIC CITY, PHASE II, HOSUR ROAD, BANGALORE 560100. PAN AAACD4078L (ERSTWHILE AAACR9468C) VS THE DCIT, CIRCLE 11 (4), BANGALORE (RESPONDENT) (APPELLANT) SHRI SHARATH RAO, CA, SHRI ANKUR PAI DHUNGAT AND MISS. VYDEHI, C. A. ASSESSEE BY MS NEERA MALHOTRA, CIT DR REVENUE BY 27/07/2016 DATE OF HEARING IT(TP)A NO. 435,436,471 & 472/B/2013 2 26/08/2016 DATE OF PRONOUNCEMENT O R D E R PER A. K. GARODIA, AM. THESE ARE CROSS APPEALS IN THE CASE OF THE SAME ASS ESSEE FOR THE SAME ASSESSMENT YEAR I.E. 2008 09 BUT IN RESPECT OF TWO DIFFERENT COMPANIES WHICH MERGED WITH THE ASSESSEE COMPANY. T HESE APPEALS ARE DIRECTED AGAINST TWO SEPARATE ORDERS OF LEARNED CIT (A) IV, BENGALURU BOTH DATED 30.01.2013 AND ALL THESE APPEA LS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS C OMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST, WE TAKE UP THE CROSS APPEALS IN THE CASE OF ERSTWHILE TH CONSULTING (INDIA) PRIVATE LIMITED IN ITA NOS. 435 & 471/B/2013. ALTHOUGH VARIOUS GROUNDS ARE RAISED IN BOTH THESE A PPEALS BUT BOTH SIDES AGREED THAT GRIEVANCES OF THE ASSESSEE ARE IN RESPECT OF SEEKING EXCLUSION OF THREE COMPARABLES I.E. 1) APITCO LIMI TED, 2) CHOKSI LABORATORIES LIMITED AND 3) WAPCOS LIMITED (SEG.) A ND THE GRIEVANCES OF THE REVENUE ARE AGAINST THE DIRECTION OF CIT (A) FOR EXCLUSION OF ONE COMPARABLE I.E. RITES LIMITED (SEG.). BOTH SIDES AL SO AGREED THAT THESE ISSUES MAY BE DECIDED IN THE LIGHT OF THE CHART SUB MITTED BY THE LEARNED AR OF THE ASSESSEE AND THE ANNUAL REPORTS OF THESE COMPANIES AVAILABLE IN THE PAPER BOOK AND RELEVANT PAGE NOS. WERE POINTED OUT BY THE LEARNED AR OF THE ASSESSEE WHERE THE BUSINESS P ROFILE OF RESPECTIVE COMPANY IS AVAILABLE. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIALS ON RECORD INCLUDING THE RELEVANT PAGES OF THE ANNUAL REPORTS OF THESE COMPARABLE COMPANIES. THE FIRST COMPANY IS APITCO LIMITED. FOR THIS COMPANY, PAGES 362 TO 364 AND 378 OF THE P APER BOOK WERE REFERRED. AS PER THESE PAGES OF THE PAPER BOOK BEI NG RELEVANT PORTION OF ANNUAL REPORT OF THIS COMPANY, THIS COMPANY IS DERI VING INCOME FROM ASSET RECONSTRUCTION & MANAGEMENT SERVICES, PROJECT RELATED SERVICES, IT(TP)A NO. 435,436,471 & 472/B/2013 3 MICRO ENTERPRISES DEVELOPMENT, INFRASTRUCTURE PLANN ING & DEVELOPMENT, RESEARCH STUDIES & TOURISM, SKILL DEVE LOPMENT, ENVIRONMENT MANAGEMENT, ENTREPRENEURSHIP DEVELOPMEN T & TRAINING, CLUSTER DEVELOPMENT & ENERGY RELATED SERVICES ETC. THE BUSINESS PROFILE OF THE ASSESSEE COMPANY AS NOTED BY THE TPO ON PAGE 2 OF HIS ORDER INCLUDES MANAGEMENT CONSULTANCY SERVICES WHIC H INCLUDES ASSISTING THE AES IN IMPROVING THEIR PERFORMANCE, P RIMARILY THROUGH THE ANALYSIS OF EXISTING BUSINESS PROBLEMS AND DEVELOPM ENT OF PLANS FOR IMPROVEMENT. IN OUR CONSIDERED OPINION, THE SCOPE OF SERVICES BEING RENDERED BY THE ASSESSEE IS VERY NARROW AS COMPARED TO THE SCOPE OF SERVICES BEING RENDERED BY THIS COMPANY I.E. APITCO LIMITED AND THEREFORE, EVEN THE RISK BEING TAKEN BY THAT COMPAN Y IS ALSO HIGH AND THEREFORE, THIS COMPANY CANNOT BE CONSIDERED AS A C OMPARABLE IN THE PRESENT CASE BECAUSE OF FUNCTIONAL DISSIMILARITY. W E DIRECT THE AO/TPO TO EXCLUDE THIS COMPANY FROM THE FINAL LIST OF COMP ARABLES. 5. THE SECOND COMPARABLE COMPANY IN DISPUTE IS CHOK SI LABORATORIES LIMITED. FOR THIS COMPANY, PAGE NO. 40 7 OF THE PAPER BOOK IS REFERRED BY THE LEARNED AR OF THE ASSESSEE. AS P ER THIS PAGE OF THE PAPER BOOK BEING RELEVANT PORTION OF ANNUAL REPORT OF THIS COMPANY, THIS COMPANY IS A COMMERCIAL TESTING HOUSE ENGAGED IN THE TESTING OF VARIOUS PRODUCTS AND ALSO OFFERS SERVICES IN THE FI ELD OF POLLUTION CONTROL AS ALLIED ACTIVITY. . IN OUR CONSIDERED OPINION, THE NATURE & SCOPE OF SERVICES BEING RENDERED BY THE ASSESSEE IS VERY DIF FERENT AND NARROW AS COMPARED TO THE SCOPE OF SERVICES BEING RENDERED BY THIS COMPANY I.E. CHOKSI LABORATORIES LIMITED AND THEREFORE, THIS COM PANY ALSO CANNOT BE CONSIDERED AS A COMPARABLE IN THE PRESENT CASE B ECAUSE OF FUNCTIONAL DISSIMILARITY. WE DIRECT THE AO/TPO TO E XCLUDE THIS COMPANY ALSO FROM THE FINAL LIST OF COMPARABLES. 6. THE THIRD COMPARABLE COMPANY IN DISPUTE IS RITES LIMITED. FOR THIS COMPANY, PAGE NO. 474 OF THE PAPER BOOK IS REF ERRED BY THE LEARNED IT(TP)A NO. 435,436,471 & 472/B/2013 4 AR OF THE ASSESSEE. AS PER THIS PAGE OF THE PAPER B OOK BEING RELEVANT PORTION OF ANNUAL REPORT OF THIS COMPANY, THIS COMP ANY HAS SECURED A NUMBER OF CONTRACTS RELATING TO EXPORT OF ROLLING S TOCK AND TECHNICAL ASSISTANCE. IN OUR CONSIDERED OPINION, THE NATURE & SCOPE OF SERVICES BEING RENDERED BY THE ASSESSEE IS ALSO VERY DIFFERE NT AS COMPARED TO THE SCOPE OF SERVICES BEING RENDERED BY THIS COMPANY I. E. RITES LIMITED AND THEREFORE, THIS COMPANY ALSO CANNOT BE CONSIDERED A S A COMPARABLE IN THE PRESENT CASE BECAUSE OF FUNCTIONAL DISSIMILARIT Y. WE THEREFORE, DECLINE TO INTERFERE IN THE ORDER OF CIT (A) REGARD ING HIS DIRECTION TO EXCLUDE THIS COMPANY FROM THE FINAL LIST OF COMPARA BLES. 7. THE FOURTH COMPARABLE COMPANY IN DISPUTE IS WAPC OS LIMITED (SEG.). FOR THIS COMPANY, PAGE NO. 580, 587, 590,59 5 & 635 OF THE PAPER BOOK IS REFERRED BY THE LEARNED AR OF THE ASS ESSEE. AS PER THESE PAGES OF THE PAPER BOOK BEING RELEVANT PORTION OF A NNUAL REPORT OF THIS COMPANY, THIS COMPANY DERIVES MAJORITY OF ITS REVEN UES FROM CONSULTANCY AND CONTRACTS AND IT IS HAVING THREE BU SINESS CENTRE BEING 1) CENTRE FOR POWER, 2) CENTRE FOR INFRASTRUCTURE A ND 3) CENTRE FOR WATER RESOURCES. IN OUR CONSIDERED OPINION, THE NATURE & SCOPE OF SERVICES BEING RENDERED BY THE ASSESSEE IS ALSO VERY DIFFERE NT AS COMPARED TO THE SCOPE OF SERVICES BEING RENDERED BY THIS COMPANY I. E. WAPCOS LIMITED (SEG.)AND THEREFORE, THIS COMPANY ALSO CANNOT BE CO NSIDERED AS A COMPARABLE IN THE PRESENT CASE BECAUSE OF FUNCTIONA L DISSIMILARITY. WE DIRECT THE AO/TPO TO EXCLUDE THIS COMPANY ALSO FROM THE FINAL LIST OF COMPARABLES. 8. AS PER ABOVE DISCUSSION, IT IS SEEN THAT THERE I S NO MERIT IN THE OBJECTION OF THE REVENUE SEEKING NON EXCLUSION OF O NE COMPARABLE I.E. RITES LIMITED AND WE HAVE HELD THAT ALL THREE COMPA NIES, EXCLUSION OF WHICH IS BEING REQUESTED BY THE ASSESSEE I.E. 1) AP ITCO LIMITED, 2) CHOKSI LABORATORIES LIMITED AND 3) WAPCOS LIMITED ( SEG.) SHOULD BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES. IT(TP)A NO. 435,436,471 & 472/B/2013 5 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE BEING ITA 435/BANG/2013 IS PARTLY ALLOWED IN THE TERMS INDICA TED ABOVE AND THE APPEAL OF THE REVENUE BEING ITA 471/BANG/2013 IS DI SMISSED. 10. NOW, WE TAKE UP THE CROSS APPEALS IN THE CASE O F ERSTWHILE RELQ SOFTWARE PRIVATE LIMITED IN ITA NOS. 436 & 472/B/20 13. 11. IT IS SUBMITTED BY THE LEARNED AR OF THE ASSESS EE THAT OUT OF 20 COMPARABLES AS PER THE ORDER OF THE TPO, LEARNED CI T (A) HAS REJECTED THE CLAIM OF EXCLUSION OF TWO COMPARABLES I.E. 1) L GS GLOBAL LIMITED AND 2) E ZEST SOLUTIONS LIMITED AND THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL SEEKING THEIR EXCLUSION AND LEARNED C IT (A) HAS DIRECTED EXCLUSION OF THE FOLLOWING 8 COMPARABLES AND THE RE VENUE IS IN APPEAL AGAINST THIS DIRECTION OF CIT (A). THESE 8 COMPANIE S ARE 1) AVANI CINCOM TECHNOLOGIES LIMITED, 2) CELESTIAL BIOLABS L IMITED, 3) TATA ELXSI LIMITED (SEG.), 4) WIPRO LIMITED (SEG.), 5) FLEXTRO NICS SOFTWARE SYSTEMS LIMITED (SEG.), 6) IGATE GLOBAL SOLUTIONS LIMITED, 7) SASKEN COMMUNICATION TECHNOLOGIES LIMITED (SEG.) AND 8) KA LS INFO SYSTEMS LIMITED (SEG.). HE SUBMITTED A COPY OF TRIBUNAL ORD ER IN ASSESSES OWN CASE FOR THE SAME YEAR IN ITA NO. 1682/BANG/2012 AN D SUBMITTED THAT AS PER THIS TRIBUNAL ORDER, ALL THESE 10 COMPARABLE COMPANIES ARE TO BE EXCLUDED AND IF THAT IS DONE, THE AVERAGE MARGIN OF REMAINING 7 COMPARABLES WILL BE 19.62 % BECAUSE NO GROUND IS RA ISED BY THE REVENUE IN RESPECT OF 3 COMPARABLES FOR WHICH, LEAR NED CIT (A) DIRECTED FOR EXCLUSION I.E. 1) INFOSYS TECHNOLOGIES LIMITED, 2) MINDTREE LIMITED (SEG.) AND 3) PERSISTENT SYSTEMS LIMITED. HE DRAWN OUR ATTENTION TO PAGE 31 OF THIS TRIBUNAL ORDER. IT WAS POINTED OUT BY THE BENCH THAT THE ISSUE REGARDING 3 COMPARABLE COMPANIES I.E. 1) FLEX TRONICS SOFTWARE SYSTEMS LIMITED (SEG.), 2) IGATE GLOBAL SOLUTIONS L IMITED AND 3) SASKEN COMMUNICATION TECHNOLOGIES LIMITED (SEG.) IS NOT CO VERED IN FAVOUR OF THE ASSESSEE BY THIS TRIBUNAL ORDER ALTHOUGH FOR RE MAINING 7 COMPARABLE COMPANIES, IT IS SO COVERED BECAUSE LEAR NED DR OF THE IT(TP)A NO. 435,436,471 & 472/B/2013 6 REVENUE HAS NOT POINTED OUT ANY DIFFERENCE IN FACTS . IN REPLY, HE SUBMITTED THAT THE ISSUE ABOUT THESE THREE COMPANI ES WAS LEFT OPEN BY THE TRIBUNAL IN THIS ORDER BUT EVEN IF THESE THREE COMPANIES ARE NOT EXCLUDED, THE AVERAGE PROFIT OF SUCH 10 COMPARABLE COMPANIES INCLUDING THESE THREE WILL BE ONLY 17.42 % AS AGAIN ST 19.62 % OF 7 COMPANIES AFTER EXCLUDING THESE THREE COMPANIES AND THE PROFIT PERCENTAGE OF THE PRESENT ASSESSEE IS 9.90% AS NOTE D BY THE TPO ON PAGE 2 OF HIS ORDER. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND TH E TRIBUNAL ORDER CITED BY THE LEARNED AR OF THE ASSESSEE. AS PER THI S TRIBUNAL ORDER, FOLLOWING 7 COMPANIES ARE TO BE EXCLUDED FROM THE L IST OF FINAL COMPAABLES I.E. 1) AVANI CINCOM TECHNOLOGIES LIMITE D, 2) CELESTIAL BIOLABS LIMITED, 3) TATA ELXSI LIMITED (SEG.), 4) W IPRO LIMITED (SEG.), 5) LGS GLOBAL LIMITED, 6) E ZEST SOLUTIONS LIMITED A ND 7) KALS INFO SYSTEMS LIMITED. REGARDING THE REMAINING THREE COMP ANIES EXCLUSION OF WHICH IS ALLOWED BY CIT (A) BUT THE ISSUE IS NOT COVERED BY THIS TRIBUNAL ORDER I.E. 1) FLEXTRONICS SOFTWARE SYSTEMS LIMITED (SEG.), 2) IGATE GLOBAL SOLUTIONS LIMITED AND 3) SASKEN COMMUN ICATION TECHNOLOGIES LIMITED (SEG.), WE FIND THAT TURNOVER OF FOLLOWING TWO COMPANIES IS MORE THAN 10 TIMES OF THE TURNOVER OF THE ASSESSEE COMPANY AT RS. 75.35 CRORES. THE TURNOVER OF 1) FL EXTRONICS SOFTWARE SYSTEMS LIMITED (SEG.) IS RS.953.35 CRORES AND OF 2 ) IGATE GLOBAL SOLUTIONS LIMITED IS RS. 781.51 CRORES. HENCE THES E TWO COMPANIES ARE ALSO EXCLUDED BY APPLYING TURNOVER FILTER. THE N WE ARE LEFT WITH 8 COMPARABLES OUT OF 20 COMPARABLES SELECTED BY THE T PO. THE AVERAGE MARGIN OF THESE REMAINING 8 COMPARABLES IS STATED T O BE 18.52%. WE DIRECT THE TPO/AO TO VERIFY THIS WORKING OF AVERAGE MARGIN OF THESE 8 COMPARABLE COMPANIES AND RECALCULATE THE TP ADJUSTM ENT ACCORDINGLY. 13. REGARDING THE ISSUE RAISED BY THE REVENUE IN RE SPECT OF DEDUCTION U/S 10A, WE FIND THAT THIS ISSUE IS COVERED IN FAVO UR OF THE ASSESSEE BY IT(TP)A NO. 435,436,471 & 472/B/2013 7 THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT RENDER ED IN THE CASE OF TATA ELXSI LIMITED, 349 ITR 98 AND RESPECTFULLY FOL LOWING THE SAME, WE DECLINE TO INTERFERE IN THE ORDER OF CIT (A) ON THI S ISSUE. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE BEING ITA 436/BANG/2013 IS PARTLY ALLOWED IN THE TERMS INDICA TED ABOVE AND THE APPEAL OF THE REVENUE BEING ITA 472/BANG/2013 IS AL SO PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. 15. IN THE COMBINED RESULT, THE APPEAL OF THE REVEN UE BEING ITA 471/BANG/2013 IS DISMISSED AND REMAINING ONE APPEAL OF THE REVENUE AND TWO APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/- SD/- (SUNIL KUMAR YADAV) (A.K.GAROD IA) JUDICIAL MEMBER ACCOUN TANT MEMBER PL ACE: BANGALORE DATED: 26/08/2016 AM* COPY OF THE ORDER FORWARDED TO : 1.THE APPELLANT 2.THE RESPONDENT. 3.CONCERNED CIT 4.THE CIT(A) 5.D.R., I.T.A.T., BANGALORE ASSTT. REGIS TRAR IT(TP)A NO. 435,436,471 & 472/B/2013 8 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 THE SR. P. S. .. 4 DATE ON WHICH THE ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT .. 5. DATE ON WHICH THE ORDER COMES BACK TO THE SR. 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. DATE ON WHICH ORDER DOES 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 RE GISTRAR FOR SIGNATURE ON THE ORDER. 12 THE DATE ON WHICH THE FILE GOES TO THE DISPATCH SECTION FOR DISPATCH OF THE TRIBUNAL ORDER 13 DATE OF DISPATCH OF ORDER