DCIT, Bangalore V. M/s Yodlee Infotech Pvt. Ltd., Bangalore

ITA 457/BANG/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0194 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 08-09-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 25-03-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Related party transaction; Transfer pricing; International transaction
• Section: 143(3); 10B

Judgement Text

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.457(BANG) 2015 (ASSESSMENT YEAR : 2010-11) THE DEPUTY COMMISSIONER INCOME TAX, CIRCLE-7(1)(2), NRUPATHUNGA ROAD, BANGALORE APPELLANT VS M/S YODLEE INFOTECH PVT.LTD., 1 ST FLOOR, MERCURY (2B) BLOCK, PRESTIGE TECHNO PARK, MARATHALLI SARJAPUR RING ROAD, KADUBEESANAHALLI, BANGALORE-560 103 NO.AAACY1273E RESPONDENT AND IT (TP) A NO.441-(BANG) 2015 (ASSESSMENT YEAR : 2010-11) (BY ASSESSEE) REVENUE BY: MRS NEERA MALHORA, CIT ASSESSEE BY: SHRI VIKRAM VIJAYARAGHAVAN, ADVOCATE DATE OF HEARING : 27-06-2016 DATE OF PRONOUNCEMENT: : 27-07-2016 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 ASSESSMENT ORDER PASSED BY THE AO U/S 143 (3) R.W.S.144C OF THE IT ACT, 1961 DATED 30-01-2015, AS PER THE DIRECTIONS OF THE DRP. IT(TP)A NOS.457 & 441(B)2015 2 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER; 1) THE ORDER OF THE LEARNED DRP IS OPPOSED TO LAW A ND THE FACTS AND C I RCUMSTANCES OF THE CASE 2) THE LEARNED DRP ERRED IN HOLDING THAT THE S IZE AND TURNOVER OF THE COMPANY ARE DECIDING FACTORS FOR TR EATING A COMPANY AS A COMPARABLE AND ACCORDINGLY ERRED IN EXCLUDING M/S. E- CLERK SERVICES LTD AND INFOSYS BP O LIMITED AS COM PARABLES . 3) THE LEARNED DRP ERRED IN EXCLUDING UNCONTRO LLED COMPARABLES HAVING TURNOVER MORE THAN RS . 200 CRORES IN THE ABSENCE OF TURNOVER CRITERION PRESCRIBED IN RUL E 10B OF INCOME TAX RULES AND ALSO THERE BEING NO CORRELATIO N BETWEEN TURNOVER AND PROFIT MARG I N . 4) THE LEARNED DRP HAS ERRED IN DIRECTED THE T PO TO GRANT RISK ADJUSTMENT OF 1 % BASED ON THE DECISION OF THE IT AT, HYDERABAD IN THE CASE OF HELLO SOFT PVT LTD . 5) THE LEARNED DRP ERRED IN DIRECTING THE AO TO FOLLOW THE RATIO OF THE HON ' BLE COURT IN THE CAS E OF TATA ELXSI LIMITED 349 ITR 98 AND EXCLUDE COMMUNICATION AND TRAVEL EXP ENSES INCURRED IN FOREIGN CURRENCY FROM THE TOTAL TURNOVE R ALSO WHILE COMPUTING THE DEDUCTION U/S 10A OF THE I . T . ACT AS THE DECISION OF THE HIGH COURT IS BINDING, WITHOUT APPR ECIATING THE FACT THAT THERE IS NO PROVISION IN SECTION 10A THAT SUCH EXPENSES SHOULD BE REDUCED FROM THE TOTAL TURNOVER ALSO , AS CLAUSE (IV) OF THE EXPLANATION TO SECTION 10A PROVI DES THAT SUCH EXPENSES ARE TO BE REDUCED ONLY FROM THE EXPOR T TURNOVER . 6) THE LEARNED DRP ERRED IN NOT APPRECIATING THE FACT THAT THE JURISDICTIONAL HIGH COURT'S DECISION IN THE CAS E OF TATA ELXSI LIMITED 349 ITR 98 HAS NOT BEEN ACCEPTED BY T HE DEPARTMENT AND AN APPEAL HAS BEEN FILED BEFORE THE HON ' BLE SUPREME COURT. 7) THE HON ' BLE DRP HAS ERRED IN APPLYING 0% RPT . THE ORDER OF THE HON ' BLE DRP IS IN ITSELF CONTRADICTORY. IT HAS DISCUSSED WHY 0% RPT SHOULD NOT BE TAKEN ON THE OTH ER HAND THE HON'BLE DRP ITSELF HAS DIRECTED THE TPO TO ADOPT THE SAME . 8) FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE DRP BE REVERSED AND THAT OF THE AO BE RESTORED. IT(TP)A NOS.457 & 441(B)2015 3 9) THE APPELLATE CRAVES TO LEAVE, TO ADD, TO ALT ER, TO AMEND OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT T HE TIME OF HEARING OF APPEAL. 3. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER; BASED ON THE FACTS AND CIRCUMSTANCES OF T H E CASE AND I N L AW , Y ODLEE I NFOTECH IND I A PR I VATE LIM I TED (HEREINAFTER REFERRED TO AS ' APPELLANT ') , RESPECTFULLY CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE APPEAL ORDER PASSED BY THE LEARNED ASSE SSING OFFICER [HEREINAFTER REFERRED TO AS THE ' LEARNED AO ' ] UNDER SECTION 143(3) READ WITH SECTION 144C OF THE INCOME -TAX ACT , 1961 (' THE ACT ') ON THE F OLLOW I NG GROUNDS: THAT ON THE FACTS AND C I RCUMSTANCES OF THE CASE AND IN LAW , 1. THE L EARNED AO , BASED ON DIRECTIONS OF THE HON ' BLE DRP , ERRED IN ASSESSING THE TOTAL INCOME AT RS . 3 , 65 , 49 , 702 AS AGA I NST RETURNED INCOME OF RS . 5 , 15 , 7 7 1 COMPUTED BY THE APPELLANT ; TRANSFER PRICING ADJUSTMENT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW : 2. THE LEARNED AOI TRANSFER PR I CING OFFICER ( ' TPO ') HAS ER R ED I N LAW AND FACTS I N CONFIRMING THE ADDITION MADE BY THE AO I TPO TO THE TOTA L I NCOME OF THE APPELLANT ON ACCOUNT OF ADJUSTMENT IN THE ARM ' S LENGTH PRICE OF THE PROV I S I ON OF SOFTWARE DEVELOPMENT SERV I CES TRANSACTION ENTE R ED BY THE APPELLANT WITH I TS ASSOC I ATED ENTE R PRISE ( ' AE ') ; 3. THE LEARNED AOI TPO ER R ED , I N L AW AND I N FACTS , BY NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE A PPELLANT IN ACCO R DANCE W I TH THE PROVISIONS OF THE ACT READ W I TH THE INCOME- TAX RULES (' RULES ' ) , AND CONDUCTING A FRESH ECONOMIC ANALYSIS FOR THE DETERMINATION OF THE ALP IN CONNEC T I ON WITH THE IMPUGNED I NTERNAT I ONA L T R ANSACTION AND HO L DING THAT THE APPE L LANT ' S INTERNATIONAL TRANSACTION IS NOT AT ARM ' S LENGTH ; 4. THE LEARNED AOI TPO ERRED , I N LAW AND IN FACTS , BY DETERM I N I NG THE ARM ' S LENGTH MARG I NAL PRICE USING ONLY FY 2010-11 DATA WH I CH WAS NOT AVAILABLE TO T HE APPELLANT AT THE TIME OF COMPLYING WITH THE TRANSFER PRIC I NG DOCUMENTATION REQU I REMENTS ; 5. THE LEARNED AO/TPO ERRED I N REJECTING CERTAIN COMPARABLE COMPAN I ES BY APPLYING THE FOLLOWING QUANTITAT I VE AND QUA L ITATIVE FILTE R S : A. THE LEARNED AO/TPO ERRED , I N LAW AND I N FACTS , BY REJECT I NG CERTAIN COMPARABLE COMPAN I ES IDENTIF I ED BY THE APPELLANT FOR HAV I NG D I FFERENT ACCOUNTING YEAR (I . E . COMPAN I ES HAV I NG ACCOUNTING YEAR OTHER THAN MARCH 31 OR COMPANIES WH OSE F I NANC I A L STATEMENTS WERE F OR A PERIOD OTHER THAN 12 MONTHS ) ; IT(TP)A NOS.457 & 441(B)2015 4 B. THE LEARNED AOITPO ERRED I N R EJECTING CERTA I N COMPARAB L E COMPAN I ES IDENT I FIED BY THE APPELLANT ON THE GROUND THAT THE COM PARABLES WERE HAV I NG D I FFERENT ACCOUNTING YEAR (OTHER THAN MARCH 31 OR COMPAN I ES WHOSE FINANCIAL STATEMENTS WERE FOR A PERIOD OTHER THAN 1 2 MONTHS ) ; AND C. THE LEARNED AO/TPO ERRED IN REJECTING CERTAIN CO MPARABLE IDENTIFIED BY THE APPELLANT USING EXPORT EARNINGS G REATER THAN75% OF THE SALES AS A COMPARABILITY CRITERION. 6. THE HON ' BLE DRP ERRED , IN LAW AND IN FACTS , BY SUO-MOTO MODIFYING THE RELATED PARTY TRANSACTIONS ( ' RPT ' ) FILTER OF ' MORE THAN 25 PERCENT ' TO ' EQUAL TO 0 PERCENT ' AND THEREBY REJECTING CERTAIN COMPAN I ES , WH I CH OTHERW I SE WERE PASSING THE FILTER OF RPT < 25 PERCENT APPLIED AND NOT DISPUTED BY BOTH THE APPELLANT AND THE AO/TPO 7. WITHOUT PREJUDICE AND CONSEQUENTIAL TO THE ABOVE GR OUND , THE FOLLOWING COMPANY REJECTED BASED ON THIS FILTER ARE TO BE REJECTED BASED ON THE FOLLOW I NG REASONS : A) M/S ICRA TECHNOANALYTICS L I MITED IS FUNCTIONALLY DIFFERENT TO YOD L EE IND I A AND I S NOT A PURE SOFTWARE DEVELOPMENT SERV I CE PROVIDER S I NCE IT ENGAGED IN THE SALE OF SOFTWA R E PRODUCTS AS WELL ; 8. THE LEARNED AO/TPO HAS ERRED , IN LAW AND IN FACTS , BY REJECTING CERTA I N COMPARAB L E COMPANIES IDENTIFIED BY THE APPELLANT USING EMPLOYEE COST GREATER THAN 25 % OF THE TOTAL REVENUES AS A COMPARABILITY CRITERION IN DETERM I NING THE ARM ' S LENGTH PRICE OF THE SOFTWARE DEVELOPMENT SERVICES T RANSACTION ; 9. THE LEARNED AO/TPO HAS ERRED , IN LAW AND IN FACTS , BY ACCEPT I NG I REJECTING COMPANIES BASED ON UNREASONABLE COMPARABILITY CRITERIA ; COMPANIES REJECTED BY TPO BASED ON UNREASONABLE COMPARABILITY CRITERIA COMPANIES HAVING RPT TRANSACTIONS TO SALES IN E X CESS OF 0 % A) AKSHAY SOFTWARE TECHNOLOGIES L I MITED B) SAVEN TECHNOLOGIES L I MITED C) CAT TECHNOLOGIES LIMITED D) EVOKE TECHNOLOGIES PVT LTD COMPANIES HAVING FORE X EARNINGS LESS THAN 75% E) C I GNITI TECHNOLOGIES LIMITED F) MAVERIC SYSTEMS LTD COMPANIES REJECTED FOR HA V ING A DIFFERENT FINANCIAL YEAR ENDING G) HELIOS & MATHESON INFORMATION TECHNOLOGY LTD H) CALIBER POINT BUSINESS SOLUTIONS LIMITED COMPANIES REJECTED FOR HA V ING EMPLO Y EE COST GREATER THAN 25 % I ) CG-VAK SOFTWARE AND EXPORTS LIMITED COMPANIES REJEC T ED FOR HA VI NG E X PORT SALES MORE THAN 75 % EXPORT SALES J ) GOLDSTONE TECHNOLOGIES LIMITED IT(TP)A NOS.457 & 441(B)2015 5 COMPANIES REJECTED FOR FINANCIAL IRREGULARITIES K) SAT YAM COMPUTER SERVICES LTD OTHER REASONS I) SILVER LINE TECHNOLOGIES LIM I TED M) R SYSTEMS INTERNATIONAL LTD COMPANY ACCEPTED BY TPO BASED ON UNREASONABLE COMPARABILITY CRITER I A A) M/S KALS INFORMATION SYSTEMS LTD WHICH WAS REJECTED BY THE TRIBUNAL IN THE APPELLANT ' S OWN CASE FOR A Y 2009 - 10 WITHOUT PREJUDICE TO THE ABOVE GROUND , THE APPELLANT WISHES TO RESERVE THE RIGHT TO ADD COMPARABLES TO THE ABOVE L I ST AND ALSO TAKE UP DIFFERENT REASONS FOR ARGUMENT GENERAL GROUNDS 10. THE LEARNED AO ERRED , IN LAW , AND IN FACTS , IN INITIATING PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT ; AND 11. THE LEARNED DRP ERRED IN UPHOLDING THE ACTION OF TH E LEARNED AO I N LEVYING INTEREST OF RS . 1 , 313 , 412 AND RS.130 , 412 UNDER SECTION 2348 & 234C OF THE INCOME TAX ACT , 1961 , RESPECTIVELY . THE APPELLANT SUBMITS THAT EACH OF THE ABOVE GROUND S IS INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER . THE APPELLANT CRAVES LEAVE TO ADD , ALTER , AMEND , VARY , OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE HON ' BLE TRIBUNAL TO DECIDE ON THE APPEAL IN ACCORDANCE WITH THE LAW . 4. IT WAS AGREED BY BOTH SIDES THAT DRP HAS APPLIED 0% RPT FILTER, WHEREAS THIS IS THE SETTLED POSITION BY NOW THAT TH E RPT FILTER SHOULD BE APPLIED AT THE RATE OF 15% AND IN THIS VIEW OF THE MATTER, IT WAS AGREED BY BOTH SIDES THAT THE ENTIRE MATTER MAY BE RESTORED B ACK TO THE FILE OF THE AO/TPO FOR A FRESH DECISION BY APPLYING RPT FILTER OF 15% BECAUSE BY CHANGING THIS RPT FILTER FROM 0% TO 15%, SEVERAL NE W COMPARABLES WILL HAVE TO BE CONSIDERED WHICH ARE EXCLUDED BY THE DRP BY APPLYING 0% FILTER AND IN THAT EVENT, THOSE COMPARABLES HAVE TO BE EXAMINED O N OTHER ASPECTS. IT IT(TP)A NOS.457 & 441(B)2015 6 WAS ALSO SUBMITTED BY THE LD. AR OF THE ASSESSEE TH AT IF THE MATTER IS RESTORED BACK TO THE FILE OF THE AO/TPO, THEN SUCH RESTORATI ON SHOULD BE WITH THE DIRECTION TO RECONSIDER ALL THE COMPARABLES SELECTE D BY THE ASSESSEE BUT REJECTED BY THE AO/TPO. 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND HAVE GO NE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND IN VIEW OF THE FACTUAL AND LEGAL POSITION AS DISCUSSED ABOVE, WE FEEL THAT IN THE FACTS OF TH E PRESENT CASE, WHERE THE DRP HAS APPLIED 0% RPT FILTER AND AS PER THE SETTLE D POSITION OF LAW BY NOW, THE RPT FILTER SHOULD BE APPLIED AT THE RATE OF 15% , WE SET ASIDE THE ORDER OF THE AO/TPO AND RESTORE BACK THE MATTER TO THE FILE OF THE AO/TPO FOR A FRESH DECISION BY APPLYING RPT FILTER OF 15%. WE ALSO H OLD THAT SINCE THE MATTER IS GOING BACK TO THE FILE OF THE AO/TPO AND MUCH DEVEL OPMENT HAS TAKEN PLACE IN THE LEGAL POSITION ON THE TP ISSUE, NOW THE ENTI RE MATTER SHOULD BE RE- EXAMINED AND DECIDED AFRESH BY THE AO/TPO AS PER TH E PRESENT LEGAL POSITION, WHICH MAY RESULT INTO FRESH CONSIDERATION OF THOSE COMPARABLES WHICH WERE REJECTED EARLIER FOR SOME REASONS. 6. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE AND THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. (SUNIL KUMAR YADAV) (A.K. GARODIA) JUDICAL MEMBER ACCOUNTANT MEMBER BANGALORE: D A T E D : / 07/2016 AM* IT(TP)A NOS.457 & 441(B)2015 7 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 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, FUR NISH 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 REGISTRAR 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