Appeal Details
Counselvise Citation
[2023] 102 COUNSELVISE.COM (IT) 0810 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
7 year(s) 6 month(s) 27 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
12-10-2023
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
B
Next Hearing Date
16-08-2023
Assessment Year
2011-2012
Appeal Filed On
15-03-2016
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER Appeal No. Appellant Respondent Assessment Year IT(TP)A No. 450/Bang/2016 M/s. Concentrix Technologies (India) Pvt. Ltd., Maruthi Chambers, No. 17/9C, 17/4C, 3 rd Floor, Rupena Agrahara, Hosur Road, Bangalore – 560 068. PAN: AAGCM8538E The Deputy Commissioner of Income Tax, Circle – 2(1)(1), Bangalore. 2011-12 IT(TP)A No. 204/Bang/2017 The Income Tax Officer, Ward – 2(1)(2), Bangalore. 2012-13 ITA No. 1075/Bang/2018 The Deputy Commissioner of Income Tax, Circle – 2(1)(1), Bangalore. M/s. Concentrix Technologies (India) Pvt. Ltd., Maruthi Chambers, No. 17/9C, 17/4C, 3 rd Floor, Rupena Agrahara, Hosur Road, Bangalore – 560 068. PAN: AAGCM8538E 2014-15 Assessee by : Shri T. Suryanarayana, Advocate Revenue by : Shri Sunil Kumar Singh, CIT-2 Date of Hearing : 17-08-2023 Date of Pronouncement : 13-10-2023 ORDER PER BENCH Present appeals arises out of the final assessment order dated 13.01.2016 passed by the Ld.AO for A.Y. 2011-12, order dated Page 2 of 17 IT(TP)A Nos. 450/Bang/2016, 204/Bang/2017 & ITA No. 1075/Bang/2018 29.11.2016 for A.Y. 2012-13 and the revenue has filed appeal for A.Y. 2014-15 against the order of the Ld.CIT(A)-2, Bangalore dated 11.01.2018. At the outset, the Ld.AR submitted that for A.Y. 2011-12, assessee has raised additional grounds that reads as under: “Ground of Appeal 8: That the Appellant having entered into an Advance Pricing Agreement (APA) with the CBDT for AY 2013-14 to AY 2020-21 for provision of IT enabled services and the methodology/approach for preparation of segmental accounts having been agreed in the APA, the same ought to be applied for the year under consideration as well.” 2. Brief facts for Addl. Ground no. – 8 It is submitted that the margin of the Assessee for the assessment year 2011-12 under consideration computed in terms of the APA stands at 18%. It is submitted that there is no difference in the facts pertaining to the methodology for preparation of segmental accounts as agreed upon in the APA and the year under consideration, and therefore the methodology as agreed upon in the APA may be adopted for the year under consideration as well. It is also submitted that there is no difference in the functions performed, assets employed and risks assumed ("FAR") between the year under consideration, and the years covered in the APA. 2.1 It is submitted that, various Hon'ble High Courts and Tribunals have consistently held that, even if, the year under dispute is not covered by the APA, if the FAR is same, APA should be adopted for the international transactions for the year under dispute. Page 3 of 17 IT(TP)A Nos. 450/Bang/2016, 204/Bang/2017 & ITA No. 1075/Bang/2018 Reliance in this placed on the following decisions: PCIT v. Springer India (P.) Ltd ([2023] 151 taxmann.com 251 (Delhi)); Aker Powergas (P.) Ltd v DCT ([2023] 147 taxmann.com 253 (Mumbai -Trib.)); F1S Global Business Solutions India (P.) Ltd. v. DCIT ([2020] 118 taxmann.com 221 (Delhi - Trib.)); and DC1T v. Festo India (P.) Ltd. [2020] 118 taxmann.com 678 (Bangalore -Trib.). 2.2 Therefore, it is submitted that the methodology as agreed upon in the APA for A.Ys. 2013-14 to 2020-21 may be adopted for the year under consideration and the margin arrived at of 18% ought to be considered. It is submitted that no new facts needs to be referred to in order to adjudicate the additional ground. Accordingly, the same is prayed to be admitted. 2.3 The Ld.DR did not object for this ground to be admitted. 2.4 Accordingly, considering the submissions of both the sides, ground no. 8 raised in the application for admission of additional grounds stands admitted. 2.5 On perusal of ground no. 8, it is noted that assessee has entered into advance pricing agreement with CBDT for A.Ys. 2013-14 to 2020-21 for provision of ITeS services. It is prayed by the Ld.AR that the cost allocation applied for computing the margin of assessee in the APA under the ITeS segment may be applied for computing the margin of assessee for the year under consideration as the same has been accepted by the revenue. Page 4 of 17 IT(TP)A Nos. 450/Bang/2016, 204/Bang/2017 & ITA No. 1075/Bang/2018 2.6 The Ld.DR only prayed for that the cost allocation must be carried out as per appendix 3 & 4 of the APA dated 22.03.2022 for the provision of ITeS by assessee to AE. We have perused the submissions advanced by both sides in the light of records placed before us. 2.7 Considering the submissions and the APA agreement entered into by assessee with the CBDT for the subsequent assessment years, we direct the computation of the margin to be carried out as per the terms agreed in the APA in respect of the services rendered by assessee under ITeS segment. 2.8 We direct the Ld.AO/TPO to determine the arms length price of the international transaction under the ITeS segment that was the subject matter of order passed u/s. 92CA in accordance with the APA entered into by assessee for subsequent assessment years dated 22.03.2022. Accordingly, all the grounds raised by assessee pertaining to transfer pricing adjustment i.e. Ground nos. 1-2 for A.Y. 2011- 12 stands allowed for statistical purposes. 3. Ground no. 3 – The Ld.AR submitted that in respect of the comparables, assessee seeks exclusion of ICRA Online Ltd. only that has been alleged in Ground 3(m) and assessee seeks inclusion of three comparables in Ground no. 3(h), 3(j) and 3(l) which are as under: 3(h) – Informed Technologies India Ltd. 3(j) – Inhouse Production Ltd. 3(l) – Cosmic Global Ltd. Page 5 of 17 IT(TP)A Nos. 450/Bang/2016, 204/Bang/2017 & ITA No. 1075/Bang/2018 The Ld.AR submitted that apart from the above comparables sought for inclusion / exclusion, assessee do not wish to press any other comparables raised in the sub grounds of Ground no. 4. However liberty is granted to the assessee to raise the issues that are not argued and considered in an appropriate circumstances. 5. Before we undertake the comparability analysis, it is sine qua non to understand the functions performed by the assessee under the ITeS segment. Functions performed, assets owned and risks assumed by assessee are as under: Page 6 of 17 IT(TP)A Nos. 450/Bang/2016, 204/Bang/2017 & ITA No. 1075/Bang/2018 Page 7 of 17 IT(TP)A Nos. 450/Bang/2016, 204/Bang/2017 & ITA No. 1075/Bang/2018 Page 8 of 17 IT(TP)A Nos. 450/Bang/2016, 204/Bang/2017 & ITA No. 1075/Bang/2018 Page 9 of 17 IT(TP)A Nos. 450/Bang/2016, 204/Bang/2017 & ITA No. 1075/Bang/2018 Page 10 of 17 IT(TP)A Nos. 450/Bang/2016, 204/Bang/2017 & ITA No. 1075/Bang/2018 6. Based on the above, we shall carryout the comparability analysis of the assessee that the alleged comparables sought for exclusion / inclusion. A. ICRA Online Ltd. – Ground no. 3(m) It is submitted that ICRA Online Ltd. is engaged in the business of outsourced services, information services and software products and services. The company provides services to clients in the areas of data extraction, aggregation, electronic conversion of financial statement, validation and analysis, accounting and finance research and analytics. ICRA Online Ltd. is a wholly owned subsidiary of ICRA Ltd., a leading credit rating agency. ICRA Online has two strategic lines of business- Knowledge Process Outsourcing; and Information Services and Technology Solutions The Ld.AR submitted that assessee provides pure back office support services to the AEs which can be understood from the functions performed. He submitted that assessee therefore cannot be comparable with ICRA Online Ltd. that has admittedly provides KPO services. She placed reliance on the following Page 11 of 17 IT(TP)A Nos. 450/Bang/2016, 204/Bang/2017 & ITA No. 1075/Bang/2018 decisions of Coordinate Bench of this Tribunal in support of her submissions that this comparable deserves to be excluded. Element14 India (P.) Ltd. v. DCIT reported in (2021) 126 taxmann.com 333 Acusis Software India (P.) Ltd. v. ITO reported in (2020) 115 taxmann.com 479 (Bangalore-Trib.), and Aspect Technology Center (India)(P.) Ltd v. ITO reported in (2020) 118 taxmann.com 398 The Ld.DR on the contrary relied on the orders passed by the authorities below. We have perused the submissions advanced by both sides in the light of records placed before us. Coordinate Bench of this Tribunal in case of Aspect Technology Center (India)(P.) Ltd v. ITO (supra) has observed in respect of ICRA Online Ltd. as under: “41..........................As far as the company ICRA Online Ltd., is concerned, the DRP excluded this company for the reason that the details regarding its diverse functions are reported under one segment without segmental details regarding the same being made available. Therefore, the comparability of the company cannot be determined. In any event, this company is functionally dissimilar for the reason that the outsourced services segment of the company is engaged in the provision of high end consultancy services which cannot be compared to the assessee who is into provision of low end IT enabled services which are routine in nature. Further, the company fails the TPO’s own filter of export turnover in excess of 75% of total sales as the export turnover of the company amount to only 61.88% of its sales. Therefore, the company cannot be held as a comparable to the assessee.” In the above observation, the Tribunal has categorically noted that this company is into provision of high end consultancy services. Page 12 of 17 IT(TP)A Nos. 450/Bang/2016, 204/Bang/2017 & ITA No. 1075/Bang/2018 The assessee before us is providing assistance to the AE while interacting with the client when the service module is being conceptualized, client interaction in the initial stages of the contract negotiations, client interaction when the service goes live and decisions regarding and in the interaction when the service goes live and decisions regarding general administration, accounting, legal, finance and personnel matters in the US etc. In our considered opinion, this company cannot be held to be a fit comparable with that of assessee. We accordingly, direct the Ld.AO/TPO to exclude this company from the final list. Accordingly, ground no. 3(m) stands partly allowed. 7. Comparables sought for inclusion : - 3(h), 3(j) & 3(l) A. Inhouse Production Ltd. The Ld.AR submitted that in this regard it is submitted that the company was excluded by the TPO for the reason that no data was available. The DRP upheld the exclusion of the company by holding that the company incurred expenditure in foreign currency towards purchase of database which makes the company incomparable to the assessee. B. Informed Technologies India Ltd. The TPO excluded the company from the final list of comparables for the reason that the company had received rental income during the financial year which was more than the operating income from the BPO segment. The DRP upheld the exclusion of the company for the reason that the Page 13 of 17 IT(TP)A Nos. 450/Bang/2016, 204/Bang/2017 & ITA No. 1075/Bang/2018 company fails the service revenue filter of 75% applied by the TPO and that no segmental details are available. C. Cosmic Global Ltd. In this regard, it is submitted that the company was suo moto excluded by the DRP on the ground that the factum of incurring of sub-contracting expenses by the company suggests a different working model which may have a significant effect on the margin and that therefore it cannot be held to be comparable to the Assessee. The Ld.DR on the contrary relied on the observations of the authorities below. We have perused the submissions advanced by both sides in the light of records placed before us. We note that in case of Cosmic Global Ltd., this company was not excluded by the Ld.TPO but has been excluded by the DRP suomoto on the ground that it has a different working model. Further it is noted that such kind of filter has never been applied by the Ld.TPO and that the Ld.TPO has held this company to be functionally similar with assessee. Under such circumstances, we do not find any reason for this company to be excluded as the functionality has been not disputed by the revenue. We therefore direct this comparable to be included in the final list. Accordingly, ground no. 3(l) stands allowed. In sofar as Informed Technologies India Ltd. and Inhouse Production Ltd. are concerned, the details based on which these Page 14 of 17 IT(TP)A Nos. 450/Bang/2016, 204/Bang/2017 & ITA No. 1075/Bang/2018 comparables were excluded by the Ld.TPO/DRP are verifiable from the annual reports. We direct the Ld.AO/TPO to verify the details and to consider this comparable as they have not disputed the functional dissimilarities. Accordingly, these two comparables are remanded to the Ld.AO/TPO for necessary verification. Accordingly, ground nos. 3(h) and 3(j) stands allowed for statistical purposes. 8. The corporate tax issue raised by assessee for A.Y. 2011-12 in Ground no. 5 pertains to disallowance of depreciation claimed on the balance goodwill that was made on the basis of the decision of Hon’ble Supreme Court in case of CIT vs. Smifs Securities Ltd. reported in 348 ITR 302. 8.1 During the financial year relevant to the assessment year 2011-12, the Assessee acquired the assets and liabilities of the BPO Solutions business of e4e Business Solutions India Private Limited for a consideration of USD 5,000,000 (Rs.22,81,50,000/-) on 09.02.2011, on a going concern basis. Out of the above consideration, after adjusting for the value of tangible fixed assets, current assets and current liabilities, the value of goodwill was arrived at Rs.18,17,47,278/- in the financial statements. It is submitted that for tax audit purposes, out of the above goodwill, a sum of Rs.1,36,89,000/- was identified as being towards customer relationships. In the return of income filed for assessment year 2011-12, the Assessee had claimed depreciation Page 15 of 17 IT(TP)A Nos. 450/Bang/2016, 204/Bang/2017 & ITA No. 1075/Bang/2018 of Rs.17,11,125/- on customer relationships of Rs.1,36,89,000/- which was accepted by the Assessing Officer. It is submitted that the Hon'ble Supreme Court in Commissioner of Income Tax, Kolkata v. Smifs Securities Ltd. (reported in [2012] 24 taxmann.com 222 (SC)) held that that goodwill is an intangible asset eligible for depreciation under the provisions of section 32 of the Act. 8.2 It is submitted that the assessee thus raised claim for depreciation of Rs.2,10,07,285/- on balance goodwill of Rs.16,80,58,278/- (Rs.18,17,47,278 – Rs. 1,36,89,000) under Section 32 of the Act. However, the Ld.AO did not allow the same in the draft assessment order. 8.3 The Assessee in its objections before the DRP, challenged the same. The DRP disallowed the claim on the ground that the same was not claimed in the original return of income. 8.4 In any event, it is submitted that the claim raised during the course of the assessment proceedings is a valid claim and ought not to have been rejected on the mere ground that the same was not claimed in the return of income. Reliance in this regard is placed on the decision of the Hon'ble High Court of Karnataka in the case of Wipro Ltd. vs. DCIT reported in [2015] 62 taxmann.com 26. 8.5 The Ld.DR submitted that assessee had raised the additional claim of depreciation during the assessment proceedings and therefore the same ought to be rejected. He thus relied on the orders passed by the authorities below. Page 16 of 17 IT(TP)A Nos. 450/Bang/2016, 204/Bang/2017 & ITA No. 1075/Bang/2018 We have perused the submissions advanced by both sides in the light of records placed before us. 8.6 Reliance is also placed on the decision of Goetz India Ltd. vs. CIT reported in (2006) 284 ITR 323 wherein Hon’ble Supreme Court observed as under: “4. The decision in question is that the power of the Tribunal under section 254 of the Income Tax Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the assessing officer to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Income Tax Appellate Tribunal under section 254 of the Income Tax Act, 1961. There shall be no order as to costs.” From the above it is clear that this Tribunal has the power to direct the Ld.AO to claim verify the assessee. Accordingly, we direct the Ld.AO to consider the claim of assessee in the light of the directions by Hon’ble Supreme Court in case of CIT vs. Smifs Securities Ltd. (supra) and also in accordance with law. Accordingly, Ground no. 5 raised by assessee stands allowed for statistical purposes. The appeal filed by the assessee for A.Y. 2011-12 stands partly allowed as indicated hereinabove. 9. For A.Ys. 2012-13 & 2014-15, the only issue raised by the assessee is regarding the disallowance of depreciation on goodwill. As we have already remanded similar issue for A.Y. 2011-12 hereinabove applying mutatis mutandis this issue for the Page 17 of 17 IT(TP)A Nos. 450/Bang/2016, 204/Bang/2017 & ITA No. 1075/Bang/2018 year under consideration also stands remanded to the Ld.AO for necessary verification in line with the decision of Hon’ble Supreme Court in case of CIT vs. Smifs Securities Ltd. (supra) and in accordance with law. Accordingly, the appeal filed by the assessee for A.Y. 2012-13 and the appeal by revenue for A.Y. 2014-15 stands allowed for statistical purposes. Order pronounced in the open court on 13 th October, 2023. Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 13 th October, 2023. /MS / Copy to: 1. Appellant 2. Respondent 3. CIT 4. DR, ITAT, Bangalore 5. Guard file By order Assistant Registrar, ITAT, Bangalore
