ITO, Ward-16(3), Hyd, Hyderabad V. Pegasystems Worldwide India Pvt.Ltd., Hyd, Hyderabad

ITA 451/HYD/2016

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3146 (ITAT-HYDERABAD)
• Duration Of Justice: 5 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB-A
• Next Hearing Date: 16-12-2020
• Assessment Year: 2011-2012
• Appeal Filed On: 29-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMISHA S GUPTA
• Keywords: Transfer pricing; International transaction; Retrospective amendment
• Section: 143(3); 92B; 144C; 13

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD (THROUGH VIRTUAL HEARING) BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA NO.451/HYD/2016 A.Y. 2011 - 12 INCOME TAX OFFICER, WARD - 16(3), HYDERABAD. VS. M/S. PEGASYSTEMS WORLDWIDE INDIA PVT LTD., HYDERABAD. PAN: AAECP 3453 F (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI HEMEN CHANDARIYA REVENUE BY: SMT. AMISHA S. GUPTA, DR ITA NO. 131/HYD/2017 (A.Y. 2012 - 13) ITA NO. 2196/HYD/2017 (A.Y. 2013 - 14) PEGASYSTEMS WORLDWIDE INDIA PRIVATE LIMITED, HYDERABAD. PAN: AAECP 3453 F VS. DCIT, CIRCLE - 16(2), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI HEMEN CHANDARIYA REVENUE BY: SMT. AMISHA S. GUPTA, DR DATE OF HEARING: 17/5/2021 DATE OF PRONOUNCEMENT: 09 /6/2021 ORDER PER S.S. GODARA, J.M: TH E SE REVENUES AND ASSESSEE S APPEAL S ITA NO. 451/H/2016 AND ITA NO.131 & 2196/H/2017 FOR THE A YS 2011 - 12 TO 2013 - 14 ARISE 2 AGAINST ITO, WARD - 16(3), HYDERABADS ASSESSMENT DATED 27/01/2016 AND ITO, WARD - 16(2), HYDERABADS TWIN ASSESSMENTS DATED 13/11/2016 AND 26/10/2017, FRAMED IN FURTHERANCE TO THE DISPUTE RESOLUTION PANEL - 1, BANGALURU [ IN SHORT DRP ] S DIRECTIONS , DATED 3/12/2015; 25/10/2010 AND 07/09/2017 IN FILE NOS. 427/DRP - BNG/2015 - 16; 190/DRP - BNG/2016 - 2017 AND 391/DRP - BNG/2016 - 17 ; RESPECTIVELY, INVOLVING PROCEEDINGS U/S. 143(3) R.W.S 144C OF THE INCOME TAX ACT, 1961 [THE ACT]. 2. AT THE OUTSET, WE FIND THAT THERE IS A DELAY OF 2 DAYS IN FILING OF THE REVENUES APPEAL ITA NO. 451/HYD/2016 (A.Y. 2011 - 12) IN RESPECT OF WHICH THE JURISDICTIONAL INCOME TAX OFFICER, WARD - 16(3), HYDERABAD HAD FILED AN AFFIDAVIT STATING THE REASONS FOR FIL ING THE APPEAL BEYOND THE PRESCRIBED TIME LIMIT AND THE RELEVANT PORTION FROM THE AFFIDAVIT IS EXTRACTED HEREIN BELOW FOR REFERENCE: 1. THAT I AM HOLDING JURISDICTION OVER THE RESPONDENT ASSESSEE AND AM AWARE OF THE FACTS THEREIN. 2. THAT DUE TO MIX - UP OF THE REQUISITE FILE OF THE RESPONDENT ASSESSEE IN THE OFFICE OF THE PR. CIT - 4, HYDERABAD, THE AUTHORIZATION ALONG WITH ORIGINAL ORDER OF THE CIT(A) COULD NOT BE FORWARDED TO ME TILL 28/03/2015. 3. THAT DUE TO THE DELAY IN SUCH COMMUNICATION, THERE IS A DELAY IN FILING OF APPEAL BY 2 DAYS. 4. IT IS EARNESTLY PRAYED THAT THE DELAY IN FILING THE APPEAL BE CONDONED AND APPEAL BE ADMITTED TO BE HEARD ON MERITS. 3 3. ON PERUSAL OF THE AVERMENTS OF THE ITO, WARD - 16(3), HYDERABAD AS STATED ABOVE, WE FIND TH AT HE WAS PREVENTED BY A REASONABLE AND SUFFICIENT CAUSE FOR NOT FILING THE APPEAL WITHIN THE STIPULATED TIME BEFORE THE TRIBUNAL. ACCORDINGLY, WE CONDONE THE DELAY OF 02 DAYS IN REVENUES APPEAL AND PROCEED TO ADJUDICATE THE SAME ON MERITS. HEARD BOTH P ARTIES. CASE FILES PERUSED. 4 . IT EMERGES AT THE OUTSET THAT THE REVENUES AS WELL AS ASSESSEE S FORMER SUBSTANTIVE GRIEVANCE IN THEIR RESPECTIVE APPEAL S ITA NO. 451/H/2016 2016 AND ITA NO.131/H/2017 AND LATTERS SUBSTANTIVE GRIEVANCE IN ITS APPEAL ITA NO.2196/H/2017 INTER ALIA SEE KS TO REVERSE THE LEARNED L OWER A UTHORITIES ACTI O N ; AND MORE PARTICULARLY THE DRPS D IRECTIONS IN ITA NO. 451/H/2016, DELETIN G A RMS L ENGTH P RICE ALP ADJUSTMENT (S) OF RS. 2,30,25,260 / - AND CONFIRMING SIMILAR ADJUSTMENT (S) OF RS. 12,12,62,138/ - AND RS. 12,71,68,334/ - ; RESPECTIVELY. 5 . WE NOTICE AT THE OUTSET THAT THE DRPS DIRECTIONS IN REVENUES APPEAL (ITA 451/H/ 2016 ) HAVE PLACED RELIANCE ON THE T RIBUNALS ORDER IN A SSESSEE S A PPEAL ITSELF ITA NO.1758 & 1936 /H/2014 DELETING IDENTICAL ADJUSTMENT THAT THERE IS NO MATERIAL ON RECORD ABOUT THE IMPUGNED RECEIVABLES TO HAVE ARISEN AS A CONSEQUENCE TO SALES MADE TO THE AE (S) THEREBY FORMING AN INDEPENDENT TRANSACTION U/S. 92B OF THE ACT . WE ARE FURTHER INFORMED THAT THE L EARNED L OWER A UTHORITIES HAVE 4 ADOPTED STATE BANK OF INDIAS SHORT TERM DEPOSIT RATES BETWEEN 4.7% AND 7.25% IN AY 2012 - 13 AND 2013 - 14 WHILST MAKING THE IM PUGNED ADJUSTMENT. 6 . THE FIRST AND FOREMOST ARGUMENT RAISED AT BOTH THE PARTYS BEHEST IS AS TO WHETHER INTEREST ON RECEIVABLES FORMS AN INTERNATIONAL TRANSACTION OR NOT U /S.92B OF THE ACT. SUFFICE TO SAY, THIS T RIBUNALS C O - ORDINATE B ENCH DECISION BECHT EL INDIA PVT LTD (2017) 85 TAXMANN.COM 121 (DELHI) HOLDS THAT INTEREST ON RECEIVABLES INDEED COMES WITHIN THE PURVIEW OF SECTION 92B EXPLANATION (C) INSERTED VIDE FINANCE ACT 2012 AS APPLICABLE WITH RETROSPECTIVE EFFECT FROM 1/4/200 2 . HONBLE MADRAS H IGH C OURTS RECENT JUDGMENT IN P CIT VS RE D DINGTON INDIA DATED 10/ 1 2/2020 IN TAX APPEAL S 590 - 591/2019 ALSO H O LD S THE SAME VIEW . WE THUS, ACCEPT THE REVENUES ARGUMENTS IN PRINCIPLE THAT INTEREST ON RECEIVABLES IS INDEED AN INTERNATIONAL TRAN SACTION U/S.92B OF THE ACT. 7 . NEXT COMES THE ADJUDICATION OF THE IMPUGNED ISSUE ON MERITS. WE NOTICE WITH THE ABLE ASSISTANCE OF BOTH THE PARTIES THAT NEITHER OF THE TPO IN THESE THREE ASSESSMENT YEARS HAS GIVEN ANY COMPARABLE INSTANCE IN THE VERY SEGMEN T WHIL ST CHARGING THE IMPUGNED INTEREST ON THE A SSESSEE S RECEIVABLES SINCE HE HAD ADOPTED THE SBIS T ERM D EPOSIT RATES ONLY IN BENCHMARKING THE SAME. 8 . THE REVENUES ENDEAVOR BEFORE US SUPPORTS THE L OWER A UTHORITIES ACTION ON THE PRETEXT THAT SUCH RECEIVABLES ARE VERY MUCH AKIN TO A 5 FINANCIAL TRANSACTION TO BE BENCHMARKED AS PER THE SBIS S HORT T ERM LENDING OR D EPOSIT RATES . WE FIND NO MERIT IN THE REVENUES INSTANT ARGUMENT SINCE CHAPTER - X OF THE ACT IS A SPECIAL P ROVISION WHEREIN EACH AND EVERY ADJUSTMENT COULD ONLY BE MADE GOING BY THE UNCONTROLLED MARKET PRICE OF THE TRANSACTIONS IN THE VERY SEGMENT; FOLLOWED BY BENCHMARKING THEREOF AS PER THE I NTERNATIONAL C URRENCY LIBOR RATES ONLY. WE , THEREFORE, REVERSE THE TPOS IDENTICAL ACTION IN ALL THESE A SSESSMENT Y EARS IN VIEW OF THE FOREGOING TWIN REASONS REGARDING NON - QUANTIFICATION OF THE IMPUGNED ADJUSTMENT ( S ) SEGMENT WISE AND AS PER THE LIBOR RATES. COUPLED WITH THIS, THE FACT ALSO REMAINS THAT THE ASSESSEE HAS AL READY SUCCEEDED ON THE VERY ISSUE IN AY 2009 - 2010. WE , THUS, FOLLOW JUDICIAL CONSISTENCY AS WHILST CONFIRMING THE DRPS DIRECTION S IN A.Y: 2011 - 2012 TO THE ASSESSING OFFICER TO DELETE THE IMPUGNED INTEREST ADJUSTMENTS ON R ECEIVABLES OF RS.2,30,25,260/ - AND FURTHER DELETE SIMILAR ADJUSTMENTS OF RS.12,12,62,138/ - AND RS.12,71,68,334/ - IN A SSESSEE S A PPEAL S ITA NO.131 & 2196/H/2017 IN AYS 2012 - 13 AND 2013 - 14 ( S UPRA) ; RESPECTIVELY. 9 . WE STAY BACK O N THE REVENUES SECOND SUBSTANTIVE GROUND IN ITA NO. 451/H/2016 THAT THE DRP HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE ASSESSING OFFICER TO EXCLUDE COMMUNICATION CHARGES OF RS. 1,17,35,035/ - FROM A SSESSEE S TOTAL T URN O VER. WE NOTICE HE REIN AS WELL THA T THE ASSESSING OFFICERS DRAFT ASSESSMENT ORDER HAD EXCLUDED THE IMPUGNED COMMUNICATION CHARGES FROM EXPORT TURNOVER ONLY WHICH 6 STANDS MODIFIED IN THE DRPS DIRECTIONS THAT THE A SSESSEE S TOTAL T URN O VER OF RS.4,26,963/ - MUST ALSO FOLLOW THE SUIT TO THIS L IMITED EXTENT. SUFFICE TO SAY , THE INSTANT ISSUE HAS ALSO STANDS SETTLED AS PER THE H ONBLE A PEX C OURT S L ANDMARK DECISION IN ADDL. CIT VS. HCL TECHNOLOGIES LTD (2018) 404 ITR 719 (SC) FOLLOWED BY THE CBDT S C IRCULAR NO.4/2018 DATED 14/8/2018 HOLD THAT COMMUNICATION CHARGES DESERVE TO BE EXCLUDED BOTH EXPORT AS WELL AS TOTAL TURNO VER. WE THUS, DECLINE THE REVENUES INSTANT LATER SUBSTANTIVE GROUND AS WELL. ITS MAIN APPEAL (ITA 451/H/ 2016) ALSO STANDS REJECTED. 1 0 . WE NEXT COME TO THE ASSESSEE S LAT T ER S UBSTANTIVE GROUND IN AY 2012 - 13 S A PPEAL ITA NO.131/H/2017 THAT THE L EARNED L OWER A UTHORITIES HAVE ERRED IN LAW AND FACTS WHILE EXCLUDING ITS COMMUNICATION CHARGES OF RS.1,14,71,617/ - ONLY FROM THE E XPORT TH A N THE ENTIRE T URNOVER. WE FOLLOW OUR PRECEDING R EASONING TO DIRECT THE ASSESSING OFFICER TO EXCLUDE THE IMPUGNED COMMUNICATION CHARGES FROM A SSESSEE S TURNOVER AS WELL. ITS LA T TER SUBSTANTIVE GROUND IN AY 2012 - 13 S A PPEAL IS ACCEPTED FOR STATISTICAL PURPOSES. ITS MAIN APPEAL ITA NO.131/H/2017 IS PARTL Y ALLOWED IN FOREGOING TERMS. 1 1 . WE ARE NOW LEFT WITH THE ASSESSEE S LAST A PPEAL ITA NO.2196/H/2017 FOR THE AY.2013 - 14. ITS FORMER SUBSTANTIVE GROUND THAT REMAINS UNADJUDICATED IS THAT THE L EARNED L OWER AUTHORITIES HAVE ERRED IN LAW AND ON FACTS AND IN DISALLOWING BUSINESS PROMOTION 7 EXPENSES OF RS. 51,32,730/ - . SUFFICE TO SAY, IT TRA NSPIRES FROM A PERUSAL OF THE CASE RECORDS THE DRP HAD DIRECTED THE ASSESSING OFFICER TO EXAMINE THE ASSESSEE S VOUCHERS TO THE TUNE OF RS. 82,93,680/ - WHICH IN TURN WERE SUBMITTED ONLY TO THE EXTENT OF RS. 75,49,208/ - . THE ASSESSING OFFICERS FINAL ASSES SMENT ORDER HOLD S THAT THE VOUCHERS ARE NOT WHOLLY AND EXCLUSIVELY RELATED TO THE A SSESSEE S BUSINESS. LEARNED DR FAILS TO SUBSTANTIATE THAT SUCH DAY - TO - DAY EXPENSES VERY MUCH FORM PART OF THE REGULAR HEADS OF EXPENDITURE PER SE WHICH CANNOT BE ALTOGETHER RULED OUT. WE ALSO MAKE CLEAR THAT THE ASSESSEE HAS FURTHER FAILED TO PROVE THE LIVE NEXUS BETWEEN ITS IMPUGNED CLAIM TO HAVE BEEN INCURRED WHOL LY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS ONLY . FACING WITH TH IS SITUATION , WE DEEM IT APPROPRIATE TO R ESTRICT THE IMPUGNED DISALLOWANCE TO THE EXTENT OF 20% ONLY WITH A RIDER THAT THE SAME SHALL NOT BE TREATED AS A PRECEDENT. NECESSARY COMPUTATION SHALL FOLLOW AS PER LAW. THE A SSESSEE S INSTANT LAST A PPEAL ITA 2196/HYD/2017 IS PARTLY ALLOWED IN ABOVE TERMS. NO OTHER GROUND HAS BEEN PRESSED BEFORE US. 1 2 . TO SUM UP, REVENUES APPEAL ITA NO. 451 /H/2016 IS DISMISSED AND ASSESSEE S TWIN APPEAL S ITA NO.131 & 2196 H/2017 ARE PARTLY ALLOWED IN ABOVE TERMS. A COPY OF THIS COMMON ORD ER BE PLACED IN THE RESPECTIVE CASE FILES. 8 PRONOUNCED IN THE OPEN COURT ON 09 TH JUNE, 2021. SD/ - SD/ - (L.P. SAHU) ( S.S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 09 TH JUNE , 2021. OKK COPY TO: - 1) (I) M/S. PEGASYSTEMS WORLDWIDE INDIA PVT LTD, BUILDING NO. 12A, 13 TH OFFICE LEVEL, MINDSPACE, CYBERABAD, MADHAPUR, HYDERABAD 81. 2) (I) INCOME TAX OFFICER, WARD - 16(3), 7 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. (II) DY. COMMISSIONER OF INCOME TAX, CIRCLE - 16(2), IT TOWERS, AC GUARDS, MASAB TANK, HYDERABAD 500 004. 3) TH E DISPUTE RESOLUTION PANEL - 1, BENGALURU. 4) (I) THE DCIT (TRANSFER PRICING) - II, HYDERABAD. (II) JCIT (TRANSFER PRICING), HYDERABAD. (III) DCIT (TRANSFER PRICING) - 3, HYDERABAD. 5) THE DR, ITAT, HYDERABAD 6) GUARD FILE