M/s Vendio Technologies India Private Limited, Bangalore V. ITO, Bangalore

ITA 436/BANG/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0275 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-07-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 28-03-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Related party transaction; Transfer pricing; Opportunity of being heard
• Section: 234B; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A, BANGALORE BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER IT (TP) A NO.436(BANG) 2012 (ASSESSMENT YEAR : 2007-08) M/S VENDIO TECHNOLOGIES INDIA PVT.LTD., NO.23/2, I MAIN, SESHADRIPURAM, BANGALORE-560 020 NO.AADCA 6424G APPELLANT VS THE INCOME TAX OFFICER, WARD-12(2), BANGALORE RESPONDENT AND (IN IT(TP)A NO.460(BANG)/2012 (ASSESSMENT YEAR ; 2007-08) (BY REVENUE) ASSESSEE BY : NONE REVENUE BY : DR. P.K.SRIHARI, ADDL.CIT DATE OF HEARING : 12-07-2016 DATE OF PRONOUNCEMENT: : 15-07-2016 O R D E R PER SHRI A.K.GARODIA, AM THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND T HE REVENUE WHICH ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-IV , BANGALORE DATED 31-01- 2012 FOR THE ASSESSMENT YEARS : 2007-08. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER 1 . THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) - IV TO THE EXTENT PREJUDICIAL TO THE APP ELLANT IS BAD IN LAW. 2. THE LEARNED ASSESSING OFFICER HAS ERRED IN MAKIN G A REFERENCE TO TRANSFER PRICING OFFICER FOR DETERMINI NG ARM ' S LENGTH PRICE WITHOUT DEMONSTRATING AS TO WHY IT WAS NECESSAR Y AND EXPEDIENT TO DO SO. THE LEARNED COMMISSIONER IT(TP)A NOS.436 & 460(B)2012 2 OF INCOME TAX (APPEALS) - IV HAS ERRED IN CONFIRMIN G THE ACTION OF THE ASSESSING OFFICER . 3. THE LEARNED ASSESSING OFFICER , LEARNED TRANSFER PRICING OFFICER AND COMMISSIONER OF INCOME TAX ( APPEALS) IV - ERRED IN A. PASSING THE ORDER W ITHOUT DEMONSTR A TING THAT APPELLANT HAD MOTIVE OF TAX EVASION. B. NOT APPRECIATING THAT THE CHARGING OR COMPUTATIO N PROVISION RELATING TO INCOME UNDER THE HEAD ' PROFITS & GAINS OF BUSINESS OR PROFESSION ' DO NOT REFER TO OR INCLUDE THE AMOUNTS COMPUTED UNDER CHAPTER X AND THEREFORE ADDI TION MADE UNDER CHAPTER X IS BAD IN LAW. C. ADOPTING A FLAWED PROCESS FOR ISSUING NOTICES U 1 S 133(6) AND RELYING ON THE SAME WITHOUT PROVIDING COMPLETE INFORMATION OR AN OPPORTUNITY TO CROSS EXAMINE THE COMPANIES CONCERNED. 4. THE LEARNED ASSESSING OFFICER, LEARNED TRANSFER PRICING OFFICER AND COMMISSIONER OF INCOME TAX (APPEALS) - IV HAVE ERRED IN A. COMPUTING THE ARM'S LENGTH PRICE BASED ON THE DATA FOR THE FINANCIAL YEAR 2006-07 OF THE COMPARABLES, WHICH WA S NOT AVAILABLE WHEN THE APPELLANT UNDERTOOK TRANSFER PRI CING DOCUMENTATION AND REPORTING OBLIGATIONS; B. REJECTING THE COMPARABLES SELECTED BY THE APPELLAN T ON UNJUSTIFIABLE GROUNDS; C. IGNORING THE ADDITIONAL COMPARABLES PROPOSED BY THE APPELLANT WITHOUT GIVING ANY COGENT REASONS AND ON UNJUSTIFIABLE GROUNDS; AND D. REJECTING THE TRANSFER PRICING ANALYSIS UNDERTAK EN BY THE APPELLANT ON UNJUSTIFIABLE GROUNDS. 5. THE LEARNED ASSESSING OFFICER, LEARNED TRANSFER PRICING OFFICER AND COMMISSIONER OF INCOME TAX (APPEALS) - IV HAVE ERRED IN: A. PERFORMING FRESH TRANSFER PRICING ANALYSIS AND A DOPTING INAPPROPRIATE FILTERS IN DOING FRESH TRANSFER PRICI NG ANALYSIS. B. ADOPTING COMPANIES AS COMPARABLES EVEN THOUGH TH EY ARE NOT COMPARABLE TO THE APPELLANT . C. NOT APPRECIATING THAT THE LAW DOES NOT COMPEL AD OPTING MANY (OR ANY MINIMUM) COMPANIES AS COMPARABLES AND THAT THE APPELLANT COULD JUSTIFY THE PRICE PAID / CHARGED ON THE BASIS OF AN Y ONE COMPARABLE ONLY . D. NOT MAKING PROPER ADJUSTMENT FOR ENTERPRISE LEV EL AND TRANSACTIONAL LEVEL DIFFERENCES BETWEEN THE APPELLA NT AND THE COMPARABLE COMPANIES. 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) - IV IT(TP)A NOS.436 & 460(B)2012 3 HAS ERRED IN A. ENHANCING THE AVERAGE WORKING CAPITAL ADJUSTED O PERATING MARGIN FROM 25 . 40% TO 27 . 40 WITHOUT GIVING AN OPPORTUNITY OF SHOWING CAUSE AGAINST SUCH ENHANCEMENT TO THE APPELLANT . B. CHANGING THE FILTERS APPLIED BY THE TPO WITHOUT GIVING AN OPPORTUNITY OF BEING HEARD TO THE APPELLANT . C. REJECTING THE COMPANIES HAVING OFFSHORE REVENUES LESS THAN 75% OF THE TOTAL SOFTWARE DEVELOPMENT REVENUES WITHOUT GIVING AN OPPORTUNIT Y TO THE APPELLANT AND WITHOUT DEMONSTRATING THE APPROPRIATENESS OF THIS FILTER . D. REJECTING COMPANIES HAVING RELATED PARTY TRANSAC TIONS WITHOUT APPRECIATING THAT INSIGNIFICANT RELATED PAR TY TRANSACTION CANNOT HAVE SIGNIFICANT INFLUENCE ON PR OFITABILITY OF COMPARABLE COMPANIES AND THAT SUCH COMPANIES AT LEAST OUGHT TO BE RETAINED AS COMPARABLES. E. CONFIRMING COMPANIES AS COMPARABLES IGNORING THE SUBMISSIONS OF THE APPELLANT . F. REJECTING COMPANIES AS COMPARABLES ON THE GROUND THAT MARGIN OF THESE COMPANIES IS ABNORMALLY LOW, ALTHOU GH SUCH COMPANIES SATISFIED ALL THE CHOSEN FILTERS . PRAYER 7. ON AN OVERALL CONSIDERATION OF THE FACTS OF THE CASE , AND THE LAW APPLICABLE , THE ALP AS DETERMINED BY THE TRANSFER PRICING OFFICER , AS ADOPTED BY THE ASSESSING OFFICER AND AS MODIFIED BY THE CIT(A) BEING NOT CORRECT IS TO BE Q UASHED AND THE FIGURES AS DETERMINED AND RETURNED BY THE APPEL LANT BEING CORRECT ARE TO BE ACCEPTED THE APPELLANT SUB MITS THAT EACH OF THE ABOVE GROUNDS / SUB-GROUNDS ARE INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER . THE APPELLANT CRAVES LEAVE TO ADD , ALTER , VARY , OMIT , SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL , AT ANY TIME BEFORE OR AT, THE TIME OF HEARING, OF THE APPE AL, SO AS TO ENABLE THE INCOME-TAX APPELLATE TRIBUNAL TO DECIDE THE APPEALS ACCORDING TO LAW. THE LEARNED ASSESSING OFFICER HAS ERRED IN LEVYING INTEREST UNDER SECTION 234B AND UNDER SECTION 234D. 3. THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL ARE AS UNDER; 1. THE ORDER OF THE LEARNED CIT(A) IN SO FAR AS IT RELATES TO THE FOLLOWING GROUNDS IS OPPOSED TO LAW AND FACTS OF THE CASE. 2 THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFI CE R TO EXCLUDE EXPENDITURE ON COMMUNICATION AND TRAVELLING EXP E NSES OF RS.7 , 42 , 287/- FROM TOTAL TURNOVER AS WELL WHEREAS SUCH EXCLUSION IS PERMITTED TO ARRIVE AT TH E IT(TP)A NOS.436 & 460(B)2012 4 EXPORT TURNOVER ONLY AS PER THE DEFINITIONS GIVEN I N SEC.10A OF THE ACT AND TOTAL TURNOVER HAS NOT BEEN DEFINED IN THE SECTION . 3. THE LEARNED CIT(A) ERRED IN HO L DING THAT THE SIZE & TURNOVER OF THE COMPANY ARE DECIDING FACTORS FOR TR EATING A COMPANY AS A COMPARABLE , AND ACCORDINGLY ERRED IN EXCLUDING I GATE GLOBAL SOLUTIONS LTD . , FLEXTRONICS SOFTWARE SYSTEM LTD . , M/S INFOSYS TECHNOLOGIES LTD. , MINDTREE LTD., PERSISTENT SYSTEMS LTD ., SASKEN COMMUNICATION TECHNOLOGIES LTD . , TATA ELXSI AND WIPRO LTD. , AS COMPARABLES . 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE ID . CIT(A) ERRED IN HOLDING THAT THE TPO ERRED IN NOT EXCLUDING COM PARABLES HAV I NG ANY RELATED PARTY TRANSACT I ONS NOT ONLY THOSE WITH MORE THAN 25% RELATED PARTY TRANSACTIONS ON SALES . 5. THE LEARNED CIT(A) ERRED IN LAW BY EXCLUD ING COMPANIES WHICH HAVE PROFIT MARGINS LESS THAN THE P ROFIT MARGIN OF THE TESTED PARTY . 6. ON THE FACT AND IN THE CIRCUMSTANCES OF T HE CASE , THE ID . CIT(A) ERRED IN HOLDING THAT M/S CELESTIAL LABS AND FLEXTRONICS SOFTWARE SYSTEMS LTD . , CANNOT BE TAKEN AS COMPARABLE , BEING FUNCTIONALLY DIFFERENT . 7. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE ASSESSEE IS ELIGIBLE FOR A STANDARD DEDUCTION OF 5% FROM THE ARM ' S LENGTH PRICE (ALP) UNDER THE PROVISO TO SECTION 92C(2) OF THE IT . ACT , 1961. 8. FOR THESE AND OTHER GROUNDS THAT MAY BE U RGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT(A) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED . 9. THE APPELLANT CRAVES LEAVE TO ADD, ALTER , AMEND AND/OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE . THESE APPEALS WERE FIXED FOR HEARING ON SEVERAL OCC ASIONS I.E. ON 17/03/2015,13/07/2015 AND 28/07/2015 BUT NONE APPEA RED ON BEHALF OF THE ASSESSEE ON ANY OF THESE DATES. SINCE ONE APPE AL HAS BEEN FILED BY THE IT(TP)A NOS.436 & 460(B)2012 5 REVENUE, THE BENCH DIRECTED ON 28/07/2016 THAT THE NOTICE OF HEARING FOR THE NEXT DATE SHOULD BE SERVED ON THE ASSESSEE THRO UGH THE LD. DR OF THE REVENUE AND THE DATE OF HEARING WAS FIXED ON 09/06/ 2016. ON THIS DATE ALSO, NONE APPEARED ON BEHALF OF THE ASSESSEE AND T HE LD. DR OF THE REVENUE ALSO COULD NOT FURNISH ANY EVIDENCE REGARDING SERVI CE OF THE NOTICE ON THE ASSESSEE. HOWEVER, FOR THE PURPOSE OF GRANTING ONE MORE OPPORTUNITY TO THE LD. DR FOR SERVICE OF NOTICE, HEARING WAS ADJOURNED . THE NEXT DATE OF HEARING WAS FIXED ON 12-07-2016 AND THE NOTICE OF HEARING W AS AGAIN ISSUED THROUGH LD. DR OF THE REVENUE. ON 12-07-2016 ALSO , NONE APPEARED ON BEHALF OF THE ASSESSEE AND THE LD. DR OF THE REVENU E ALSO COULD NOT PRODUCE ANY EVIDENCE TO SHOW THAT THE NOTICE OF HEARING WAS SERVED ON THE ASSESSEE. SINCE THE ASSESSEE HAS NOT APPEARED ON SO MANY DATE S AND THE REVENUE IS NOT IN A POSITION TO SERVE THE NOTICE ON THE ASSESS EE, WE FEEL IT PROPER THAT UNDER THESE FACTS, THE APPEAL OF THE ASSESSEE SHOUL D BE DECIDED EX-PARTE QUA-THE ASSESSEE AND REGARDING REVENUES APPEAL, WE FEEL IT PROPER THAT THE SAME SHOULD BE DISMISSED BECAUSE WHEN THE REVENUE I S NOT IN A POSITION TO TRACE THE ASSESSEE AND SERVE THE NOTICE ON THE ASSE SSEE, EVEN IF THE APPEAL OF THE REVENUE IS ALLOWED, THE REVENUE CANNOT RECOVER THE TAXES FROM THE ASSESSEE AND THEREFORE, IT WILL BE A FUTILE EXERCIS E. HENCE, WE DISMISS THE APPEAL OF THE REVENUE FOR ITS FAILURE TO SERVE THE NOTICE ON THE ASSESSEE. BUT IF THE REVENUE IS IN A POSITION TO SERVE THE NOTICE ON THE ASSESSEE WITHIN THE TIME ALLOWED, AS PER LAW FOR FILING M.A. U/S 254(2) OF THE IT ACT, THEN THE REVENUE MAY APPROACH THE TRIBUNAL FOR RE-CALL OF TH IS ORDER IN RESPECT OF THE REVENUES APPEAL. WITH THESE OBSERVATIONS, THE APP EAL OF THE REVENUE IS DISMISSED. IT(TP)A NOS.436 & 460(B)2012 6 4. NOW WE TAKE UP THE APPEAL OF THE ASSESSEE. THE LD DR OF THE REVENUE SUPPORTED THE ORDER OF TH E LD. CIT(A) IN RESPECT OF ISSUES RAISED BY THE ASSESSEE IN ITS AP PEAL. 5. WE HAVE CONSIDERED THE SUBMISSION OF THE LD. DR OF THE REVENUE AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) ON ANY OF THE ISSUES RAISED IN THE APPEAL OF THE ASSESSEE AND HENCE, WE DECLINE TO INT ERFERE WITH THE ORDER OF THE LD. CIT(A) ON ANY OF THESE ISSUES WHICH ARE RAI SED BY THE ASSESSEE IN ITS APPEAL. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL SO DISMISSED. 7. IN THE COMBINED RESULT, THE APPEAL OF THE REVEN UE AND OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- (VIJAY PAL RAO) SD/- (A.K. GARODIA) JUDICAL MEMBER ACCOUNTANT MEMBER BANGALORE: D A T E D : 15/ 07/2016 AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER AR, ITAT, BANGALORE IT(TP)A NOS.436 & 460(B)2012 7 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 SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER 13 DATE OF DISPATCH OF ORDER