C3i Support ServicesPrivate Limited, Hyderabad V. Dy.CIT, Circle-1(2), Hyderabad

ITA 435/HYD/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82477 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 14-03-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: TARUN CHATURVEDI
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.435/HYD/2014 : ASSESSMENT YEAR 2009 - 10 M/S. C3I SUPPORT SERVICES PRIVATE LIMITED, HYDERABAD (PAN - AACCC 2082 P ) V/S. DY. COMMISSIONER OF INCOME - TAX CIRCLE 1(2), HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI TARUN CHATURVEDI RESPONDENT BY : SHRI P.SOMA SEKHAR REDDY DR DATE OF HEARING 30 . 1 0.2014 DATE OF PRONOUNCEMENT 31.10.2014 O R D E R PER P.M.JAGTAP, ACCOUNTANT MEMBER : TH I S APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE DY. COMMISSIONER OF INCOME - TAX CIRCLE 1(2) , HYDERABAD (ASSESSING OFFICER) DATED 6.1.201 4 PASSED UNDER S.143(3) OF THE ACT READ WITH THE DIRECTIONS GIVEN BY THE DISPUTE RESOLUTION PANEL(DRP) UNDER S.144 ( C) OF THE ACT. 2. GROUNDS NO.1 TO 4 RAISED IN THIS APPEAL OF THE ASSESSEE INVOLVE A COMMON ISSUE RELATING TO THE ADDITION MADE TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT OF RS.1,54,40,203. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPA NY WHICH IS A WHOLLY OWNED SUBSIDIARY OF C3I INC., USA. IT IS A TECHNICAL HELP DESK FOR END USERS AND T HI S OPERATION MAINLY INCLUDES PROVIDING CALL CENTRE SER V I C ES FOR US BASED PHARMACEUTICAL COMPANIES AS WELL AS GLOBALLY BASED CLINICAL RESEARCH ORGANIZA TIONS. THE RETURN OF INCOME I TA NO. 435/H YD/20 14 M/S .C3I SUPPORT SERVICES P RIVATE LIMITED, HYDERABAD 2 FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 2 1 .9.2009, DECLARING TOTAL INCOME OF RS. 20,250 UNDER THE NORMAL PROVISION S OF THE ACT AND RS.3,13,59,943 UN D ER S.115JB OF THE ACT. DURING THE COURSE OF ASSESSMENT, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE COMPANY HAS PROVIDED SUPPORT SERVICES USING ITS TECHNICAL CALL CENTRE TO ITS AE, C3I INC., USA AND A TOTAL AMOUNT OF RS.19,57,78,715 WA S CHARGED FOR SUCH SERVICES. IN ORDER TO DETERMINE THE ARMS LENGTH PRICE (ALP) OF TH E SE INTERNATIONAL TRANSACTION S OF THE ASSESSEE COMPANY WITH ITS ASSOCIATED ENTERPRISES (AE) , A REFERENCE WAS MADE BY THE ASSESSING OFFICER TO THE TRANSFER PRICING OFFICER (TPO) UNDER S.92CA(1) OF THE A CT. IN THE TP STUDY REPORT SUBMITTED BY THE ASSESSEE, TP ANALYSIS WAS DONE BY APPLYING TRANSACTIONAL NET MARGIN METHOD (TNMM) , TAKING OPERATING PROFIT TO TOTAL COST (OP/ O C) AS PRICE LEVEL INDICATOR (PLI) . IN THE SAID REPORT, FOUR COMPARABLES WERE SELECTE D BY THE ASSESSEE BY APPLYING CERTAIN FILTERS AND SINCE THE ARITHMETIC MEAN OF OP/OC OF THE SAID FOUR COMPARABLES WAS 6 . 4 1%, AS AGAINST THE OP/OC OF 15.15 % OF THE ASSESSEE IN RELATION TO ITS INTERNATIONAL TRANSACTIONS WITH AE, THE PRICE CHARGED TO THE AE I N RESPECT OF THESE TRANSACTIONS WAS CLAIMED BY THE ASSESSEE TO BE AS AT ARMS LENGTH. 4. AFTER GOING THROUGH THE RELEVANT DOCUMENTS MAINTAINED BY THE ASSESSEE AND AFTER ANALYZING THE RELEVANT TRANSACTIONS, THE TPO WAS OF THE OPINION THAT THE METHOD ADOP TED BY THE ASSESSEE FOR SELECTING THE COMPARABLES SUFFERED FROM DEFECTS AND THE SAME, THEREFORE, HAD RESULTED IN SELECTION OF INAPPROPRIATE COMPARABLES AND REJECTION OF APPROPRIATE COMPARABLES. HE ACCORDINGLY CONFRONTED THE ASSESSEE WITH HIS OBSERVATIONS IN THIS REGARD, SEEKING THE LATTERS EXPLANATION/OBJECTIONS AND AFTER TAKING INTO CONSIDERATION THE OBJECTIONS RAISED BY THE ASSESSEE, THE NEW SEARCH CONDUCTED BY HIM FOR SELECTING THE APPROPRIATE COMPARABLES AND THE ANALYSIS OF THE DATA BASE, THE RELEVA NT ANNUAL REPORTS AND THE I TA NO. 435/H YD/20 14 M/S .C3I SUPPORT SERVICES P RIVATE LIMITED, HYDERABAD 3 INFORMATION COLLECTED UNDER S.133(6) AS MADE BY HIM, THE TPO FINALLY SELECTED THE FOLLOWING 12 COMPANIES AS COMPARABLES WITH ARITHMETIC MEAN OF THEIR OP/TP AT 27.42%. SL. NO. COMPANY NAME OPERATING REVENUE RS.(IN CRORES) PBIT/ COST % 1. ACCENTIA TECHNOLOGIES LIMITED 78.73 49.40 2. A C ROPETAL TECHNOLOGIES LTD. (SEG.) 33.13 25.01 3. ADITYA BIRLA MINACS WORLDWIDE LTD. 231.57 0.53 4. COSMIC GLOBAL LTD. 7.76 48.20 5. CROSSDOMAIN 33.76 29.38 6. ECLERX SERVICES LTD. 187.98 53.44 7. INFOSYS B P O LTD. 10 8 . 23 16.90 8. JEEVAN SOFTECH TECHNOLOGY LTD. 1.79 16.56 9. MICROLAND LIMITED 144.05 2.35 10. MICROGENETIC SYSTEMS LTD. 1.27 10.11 11. R.SYSTEMS INTERNATIONAL LTD.(SEG) 26.55 5.77 12. GENESYS INTERNATIONAL LTD. 83.18 71.50 AVERAGE 27.42 5. AFTER ALLOWING WORKING CAPITAL ADJUSTMENT OF - 2 %, ARITHMETIC MEAN MARGIN OF THE SELECTED COMPARABLES AT 29.42 % WAS TAKEN BY THE TPO AS ADJUSTED ARMS LENGTH MARGIN AND APPLYING THE SAME TO THE CORRESPONDING OPERATING COST OF RS. 16,30,84,478, THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE COMPANY WITH ITS AE WAS WORKED OUT BY HIM AT RS. 21,10,63,951 AS AGAINST THE PRICE OF RS. 19,57,78,715 CHARGED BY THE ASSESSEE. THE DI FFERENCE OF RS. 1,52,85,215 ACCORDINGLY WAS WORKED OUT BY THE TPO, AS TP ADJUSTMENT THAT IS I TA NO. 435/H YD/20 14 M/S .C3I SUPPORT SERVICES P RIVATE LIMITED, HYDERABAD 4 REQUIRED TO BE MADE IN RESPECT OF INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS AES. 6. WHEN THE ADDITION ON ACCOUNT OF TP ADJUSTMENT WORKED OUT BY THE TPO WAS PROPOSED TO BE MADE BY THE ASSESSING OFFICER TO THE TOTAL INCOME OF THE ASSESSEE IN THE DRAFT ASSESSMENT, OBJECTIONS WERE FILED BY THE ASSESSEE BEFORE THE DISPUTE RESOLUTION PANEL, WHICH INTER ALIA INCLUDED THE OBJECTIONS OF THE ASSESSEE IN RES PECT OF COMPARABILITY ANALYSIS CARRIED OUT BY THE TPO AND THE APPLICATION OF ADDITIONAL FILTERS BY THE TPO, WHICH ACCORDING TO THE ASSESSEE, RESULTED IN INCLUSION OF CERTAIN COMPANIES IN THE COMPARABILITY ANALYSIS WHICH DID NOT SATISFY THE TEST OF COMPARA BILITY. THE DISPUTE RESOLUTION PANEL DID NOT FIND MERIT IN THE SUBMISSIONS MADE BY THE ASSESSEE ON THIS ISSUE AND HOLDING THE ACTION OF THE TPO TO BE PROPER, THEY DECLINED TO INTERFERE WITH THE SAME. THE DRP ALSO OVERRULED THE OTHER OBJECTIONS RAISED BY T HE ASSESSEE. ACCORDINGLY, FINAL ASSESSMENT ORDER WAS PASSED BY THE ASSESSING OFFICER ON 6.1.2014 UNDER S.143(3) AS PER THE DIRECTIONS GIVEN BY THE DRP UNDER S.144C(5), MAKING THEREIN THE ADDITION OF RS.1,52,85,215 TO THE TOTAL INCOME ON ACCOUNT OF TP ADJ USTMENT. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL . 7. WE HAVE H E ARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. ALTHOUGH THE ASSESSEE HAS RAISE D VARIOUS ISSUES IN G R OUNDS N O .1 TO 4 OF THIS APPEAL, WHILE CHALLENGING THE ADDITION MADE TO ITS INCOME ON ACCOUNT OF TP ADJU S TM E NT, THE LEARNED COUN S EL FOR THE ASSESSEE HAS SUBMITTED THAT IT I S FINALLY OBJECTING TO THE SELECTION OF THE FOLLOWING SIX OUT OF THE TWELVE ENTITIES SELECTED BY THE ASSESSING OFFICER AS COMPARABLES, NAMELY - I TA NO. 435/H YD/20 14 M/S .C3I SUPPORT SERVICES P RIVATE LIMITED, HYDERABAD 5 SL. NO. COMPANY NAME 1. ACCENTIA TECHNOLOGIES LIMITED 2. ACROPETAL TECHNOLOGIES LTD. 3. ECLERX SERVICES LTD. 4. COSMIC GLOBAL LTD. 5. GENESYS INTERNATIONAL LTD. 6. INFOSYS B P O LTD. 8. THE L EARNED COUNSEL FOR THE ASSESSEE HAS ALSO S UBMITT E D THAT A SIMILAR CLAIM FOR EXCLUSION OF THE ABOVE SIX ENTITIES FORM THE LI S T O F COMPARABLES WAS MADE BY THE ASSESSEE IN THE EARLIER YEARS AND THE T RIBUNAL VIDE ITS ORDERS DATED 28.5.2014 PASSED IN ITA NO.2183/HYD/2011 FOR THE ASSESSMENT YEAR 2007 - 08 AND DATED 28.5.2014 PASSED IN ITA NO. 1794/HYD/2012 FOR THE ASSESSMENT YEAR 2008 - 09 , HAS ACCEPTED THE CLAIM OF THE ASSESSEE FOR EXCLUSION OF FOUR OUT O F SIX THESE ENTITIES AS PER THE GIST OF THOSE DECISIONS TABULATED H EREUNDER - SL. NO. COMPANY SELECTED BY THE TPO AND OBJECTED BY ASSESSEE ASSESS - MENT YEAR 2009 - 10 TREATMENT BY THE ITAT IN EARLIER YEARS 1 ACCENTIA TECHNOLOGIES LIMITED 49.40 REMOVED BY ITAT IN 2007 - 08 AND 2008 - 09 2 ACROPETAL TECHNOLOGIES (SEGMENTAL) 25.01 ACCEPTED BY THE ITAT IN 2008 - 09 3 COSMIC GLOBAL LTD. 48.20 ACCEPTED BY THE ITAT IN 2007 - 08 4 ECLERX SERVICES LTD. 53.34 REMOVED BY THE ITAT IN 2007 - 08 AN D 2008 - 09 5 GENESYS INTERNATIONAL LTD. 71.50 REMOVED BY THE ITAT IN 2008 - 09 AND 2007 - 08 6 INFOSYS B P O LTD. 16.90 REMOVED BY THE ITAT IN 2007 - 08 AND 2008 - 09 I TA NO. 435/H YD/20 14 M/S .C3I SUPPORT SERVICES P RIVATE LIMITED, HYDERABAD 6 9 . THE L EARNED COUNSEL FOR THE ASSESSEE HAS ALSO PLACED ON RECORD COPIES OF THE ORDERS OF THE TRIBUNAL DAT ED 28.5.2014 IN ITA NO.2183/HYD/2011 FOR ASSESSMENT YEAR 2007 - 08 AND DATED 28.5.2014 IN ITA NO.1794/HYD/2012 FOR ASSESSMENT YEAR 2008 - 09 AND A PERUSAL OF THE SAME SHOWS THAT THE FOUR ENTITIES, NAMELY, AC C ENTIA T E CHNOLOGIES LIMITED, EC L ERX SERVICES LTD., GENE SYS INTERNATIONAL LTD. AND INFOSYS BPO HAVE BEEN DIRECT E D TO BE EXCLU D ED BY THE TRIBUNAL F R OM THE LI S T OF FINAL COMP A RABLES, WHEREAS THE CLAIM O F TH E ASSESSEE FOR EX C LUSION OF OTHER TWO ENTITIES, VIZ. A C ROPETAL TECHNOLOGIES (SEGMENTAL) AND COSMIC GLO B AL LTD. HAS NOT BEEN ACCEPTED BY THE T RIBUNAL. AS THE RELEVANT FACTS INVOLVED IN THE Y E AR UNDER CONSIDERATION ARE SIMILAR TO ASSESSMENT YEARS 2007 - 08 AND 2008 - 09, WE RESPECTFULLY FOLLOW THE DECI SIO NS O F THE TRIBUNAL FOR ASSESSMENT YEAR 2007 - 08 AND 2008 - 09 AND DIRECT THE ASSESSING OFFICER TO E X CLU D E TH E AFOREMENTIONED FOUR ENTITIES FROM THE FINAL LI S T OF COMPARABLES. WE ARE ALSO SUPPORTED IN THIS BEHALF BY THE DECISION OF THE COORDINATE BENCH OF THIS TR IBUNAL FOR THE ASSESSMENT YEAR 2009 - 10 ITSELF IN THE CASE OF M/S. PAREXEL INTERNATIONAL (INDIA) PVT. LTD., HYDERABAD IN ITA NO.144/HYD/2014, WHEREIN, VIDE ORDER DATED 30.9.2014, CONSIDERING SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE, THE ABOVE FOUR ENTITI ES HAVE BEEN DIRECTED TO BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES. 10 . AT THE TIME OF HEARING BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT IF THE ABOVE FOUR ENTITIES ARE EXCLUDED FROM THE FINAL LIST O F COMPARABLES FOR THE PURPOSE OF COMPARABILITY ANALYSIS, THE ARITHMETIC MEAN MARGIN OF THE REMAINING EIGHT COMPARABLES WOULD COME TO AROUND 1 7 % AND THE SAME BEING LOWER THAN THE PROFIT MARGIN CHARGED BY THE ASSESSEE COMPANY TO ITS AE IN THE RELEVANT INTE RNATIONAL T RANSAC T IONS, NO ADDITION ON ACCOUNT OF TP ADJUSTMENT IS REQUIRED TO BE MADE IN THE CASE OF THE ASSESSEE. WE ACCORDINGLY DIRECT THE ASSESSING I TA NO. 435/H YD/20 14 M/S .C3I SUPPORT SERVICES P RIVATE LIMITED, HYDERABAD 7 OFFICER/TPO TO VERIFY THE CLAIM OF THE ASSESSEE BY RECOMPUTING THE ARMS LENGTH PRICE OF THE INTERNATIO NAL TRANSACTIONS OF THE ASSESSEE COMPANY WITH ITS AE AFTER EXCLUDING THE AFOREMENTIONED FOUR ENTITIES FORM THE LIST OF FINAL COMPARABLES AND ALLOW APPROPRIATE RELIEF TO THE ASSESSEE ON THIS ISSUE. GROUNDS NO. 1 TO 4 OF THE ASSESSEES APPEAL ARE ACCORDINGLY TREATED AS ALLOWED. 1 1 . THE GRIEVANCE RAISED BY TH E ASSESSEE IN GROUN D NO.5 IS THAT THE ASSESSING OFFICER HAS COMMITTED A MISTAKE IN TAKING THE BOOK PROFIT O F THE ASSESSEE COMP A NY AT R S .3,17,24,193 FOR C O MPU T ATION OF DEDUCTION UNDER S.10A INSTEAD OF TAX ABLE PROFIT OF RS.3,35,06,750. 1 2 . AT THE TIM E OF H E ARING BEFORE US, THE LEARNED COUN S EL FOR THE ASSESSEE H A S ONLY SOUGHT A DIRECTION F R OM THE TRIBUNAL TO THE ASSESSING OFFICER TO VERIFY THE RELEVANT MISTAKE F ROM THE R ECO R D AND REC T I F Y THE SAME. SINCE THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NO OBJECTION IN THIS REGARD, WE DIRECT THE ASSESSING OFFICER TO VERIFY FROM THE RECORD THE MISTAKE POINTED OUT BY TH E ASSESSEE IN GROUND NO.5 AND RECTIFY THE SAME ACCORDINGLY. 1 3 . THE ISSUE RAISED I N GROUND NO .6 RELAT ING TO LEVY OF INTER E ST UNDER S.24B AND 234C IS CONSEQUENTIAL IN NATURE AND THE ASSESSING OFFICER IS ACCORDINGLY DIRECTED TO ALLOW CONS E QUE N TIAL RELIEF TO THE ASSESSEE . 1 4 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUN CED IN THE COURT ON 31 ST OCTOBER, 2014 SD/ - SD/ - ( SAKTIJIT DEY ) ( P.M.JAGTAP ) JUDICIAL MEMBER ACCOUNTANT MEMBER D T/ - 31 ST OCTOBER, 2014 I TA NO. 435/H YD/20 14 M/S .C3I SUPPORT SERVICES P RIVATE LIMITED, HYDERABAD 8 COPY FORWARDED TO: 1. M/S. C3I SUPPORT SERVICES PRIVATE LIMITED, 2 ND FLOOR, ORION BLOCK, PLOT NO.17, VENEBURG IT PARK, SOFTWARE UNITS LAYOUT, MADHAPR, HYDERABAD 500 081 2 . DY. COMMISSIONER OF INCOME - TAX CIRCLE 1(2), HYDERABAD 3. 4. DISPUTE RESOLUTION PANEL, HYDERABAD DIRECTOR GENERAL OF INCOME - TAX, INTERNATIONAL TAXATION, HYDERABAD 500 004. 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S