Colt Technology Services India Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 4597/DEL/2011

• Counselvise Citation: 459720114 RSA 2011
• Duration Of Justice: 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 30-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 17-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : D : NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI J.S. REDDY, ACCOUNTANT MEMBER ITA NO.4597/DEL/2011 ASSESSMENT YEAR : 2007-08 COLT TECHNOLOGY SERVICES INDIA PVT. LTD., 103, ASHOKA ESTATE, BARAKHAMBA ROAD, NEW DELHI. PAN: AAACC3512G VS. ITO, WARD-3(4), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VIKAS JAIN, ADVOCATE REVENUE BY : SHRI PIYUSH JAIN, CIT, DR ORDER PER A.D. JAIN, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2007-08, TAKING THE FOLLOWING GROUNDS:- 1. THE ORDER PASSED BY THE LEARNED INCOME TAX OFFIC ER, WARD 3 (4), NEW DELHI (HEREINAFTER REFERRED AS LD. A.O.) UNDER SECTION 143 (3) READ WITH SECTION 144C OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED AS THE ACT) IS BAD IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE REFERENCE MADE BY THE LD. A.O. TO THE LEARNED ADDI TIONAL COMMISSIONER OF INCOME TAX, TPO-I(I), NEW DELHI (HE REINAFTER REFERRED AS LD. TPO) SUFFERS FROM JURISDICTIONAL ERROR AS THE LD. A.O. HAS NOT RECORDED ANY REASON ON THE BASIS OF WHI CH HE REACHED THE CONCLUSION THAT IT WAS NECESSARY OR EXPEDIE NT TO REFER THE MATTER TO THE LD. TPO. 3. THE LD. A.O. AS WELL AS THE LD. TPO AND THE LEARNED D ISPUTE RESOLUTION PANEL (HEREINAFTER REFERRED AS LD. DRP) HAVE ERRED IN ITA NO.4597/DEL/2011 2 LAW AS WELL AS FACTS OF THE CASE IN NOT ACCEPTING THE ARMS LENGTH PRICE (HEREINAFTER REFERRED AS ALP) DETERMIN ED BY THE APPELLANT. 4. THE LD. A.O/TPO/DRP HAS ACTED MECHANICALLY AND PASSE D THE ORDER IN A MECHANICAL MANNER WITHOUT APPLICATION OF M IND AND WITHOUT UNDERSTANDING THE INTRICACIES OF THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE APPELLANT. 5. THE LD. A.O/TPO/DRP HAS ERRED IN IGNORING THE FACT THA T THE APPELLANT IS ENTITLED TO DEDUCTION U/S 10A OF THE ACT ON ITS PROFITS FROM PROVISION OF INFORMATION TECHNOLOGY ENABLED SER VICES (ITES) AND CONTRACT SOFTWARE DEVELOPMENT (CSD) SERV ICES TO OVERSEAS ASSOCIATED ENTERPRISES AND THERE IS NO UNTOWAR D MOTIVE TO DERIVE ANY TAX ADVANTAGE BY MANIPULATING TRANS FER PRICES OF INTERNATIONAL TRANSACTION UNDERTAKEN BY IT WITH ITS ASSOCIATED ENTERPRISES. 6. THE LD. A.O/TPO/DRP HAS ERRED IN DETERMINING THE ALP ON THE BASIS OF DATA FOR FINANCIAL YEAR (FY) 2006-07 ONLY AND IGNORING THE DATA FOR TWO PRIOR FINANCIAL YEARS I.E. FY 2004-05 AND FY 2005-06. 7. THE LD. A.O/TPO/DRP HAS ERRED IN COLLECTING SELECTI VE INFORMATION FROM THE COMPANIES U/S 133 (6) OF THE ACT W HICH WAS NOT AVAILABLE IN THE PUBLIC DOMAIN AND RELYING ON THE SAME FOR COMPARABILITY PURPOSES. 8. THE LD. A.O/TPO/DRP HAS ERRED IN REJECTING THE ANALYS IS CONDUCTED BY THE APPELLANT AND CONDUCTING A FRESH COMPARABILITY ANALYSIS FOR DETERMINING THE ALP. 9. THE LD. A.O/TPO/DRP HAS ERRED IN ADOPTING INAPPROPRI ATE QUANTITATIVE FILTERS WHILE CARRYING OUT A FRESH COMPARA BILITY ANALYSIS. 10. THE LD. A.O/TPO/DRP HAS ERRED IN REJECTING CERTAIN COMPANIES SELECTED BY THE APPELLANT AS COMPARABLES IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUME D AND IN ACCEPTING CERTAIN COMPANIES WHICH ARE NOT COMPARABLE TO THE APPELLANT FOR DETERMINING ALP. 11. THE LD. A.O/TPO/DRP HAS ERRED IN ACCEPTING COMPANIE S WITH EXCEPTIONALLY HIGH OPERATING MARGINS AS COMPARABLES O N AN ARBITRARY BASIS. 12. THE LD. A.O/TPO/DRP HAS ERRED IN REJECTING COMPANIES WITH LOW PROFITS/LOSSES ON AN ARBITRARY BASIS. 13. THE LD. A.O/TPO/DRP HAS ERRED IN MAKING INCORRECT WO RKING CAPITAL ADJUSTMENTS. ITA NO.4597/DEL/2011 3 14. THE LD. A.O/TPO/DRP HAS ERRED IN NOT ALLOWING ANY RI SK ADJUSTMENTS TO THE APPELLANT AS IT IS REMUNERATED ON A COS T PLUS MARK-UP BASIS AND UNDERTAKES MINIMAL RISKS. 15. THE LD. A.O/TPO/DRP HAS ERRED IN NOT ALLOWING THE BEN EFIT OF + 5% AS PROVIDED BY PROVISO TO SECTION 92C(2) OF THE ACT EVEN IF THE DIFFERENCE IN THE VALUE OF ALP AND INTERNATIONAL TR ANSACTION IS MORE THAN + 5% OF THE ALP. 16. THE LD. A.O/TPO/DRP HAS ERRED IN TAKING AN INCONSIST ENT STAND BY NOT APPLYING THE WAGES/SALES RATIO FILTER TO TH E ITES SEGMENT (AS APPLIED IN THE CSD SEGMENT) AND THEREBY ADO PTING AN INCONSISTENT STAND BETWEEN THE ITES AND CSD SEGMENTS A ND APPLYING THIS FILTER SELECTIVELY ONLY TO THE CSD SEGME NT. 17. THE LD. A.O/TPO/DRP HAS ERRED IN IGNORING THE JUDICI AL PRONOUNCEMENTS RELIED UPON BY THE APPELLANT. 18. THE LD. A.O. HAS ERRED IN INITIATING PENALTY PROCEEDI NGS U/S 271(1)(C) OF THE ACT. 2. AT THE OUTSET, IT HAS BEEN CONTENDED ON BEHALF OF THE ASSESSEE, THAT WITH REGARD TO CERTAIN COMPANIES, DATA GATHERED U/S 133 (6) OF THE IT ACT WAS USED BY THE TPO, WITHOUT PUTTING IT TO THE ASSESSEE, DURING THE ASSESSMENT PROCEEDINGS. A LETTER DATED 31.07.2012 IN THIS REGARD HAS BEEN FILED BEFORE US, CONTENDING THAT DURING THE ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2007-08, THE TPO HAD R ELIED UPON INFORMATION NOT AVAILABLE IN THE PUBLIC DOMAIN FOR THE SEGREGATION OF THE COMPARABLES; THAT IN ORDER TO OBTAIN SUCH INFORMA TION, THE TPO HAD EXERCISED HIS POWERS U/S 133 (6) OF THE ACT, IT HAD NOT BEEN SHARED WITH THE ASSESSEE AND NO OPPORTUNITY TO REBUT SUCH INFORMATIO N WAS GIVEN TO THE ASSESSEE. 3. THIS LETTER HAS BEEN FOLLOWED BY ANOTHER LETTER D ATED 07.08.2012, REITERATING THE CONTENTS OF THE AFORESAID LETTER DATE D 31.07.2012 AND FURTHER SUBMITTING THAT THE MATTER BE REMITTED TO TH E FILE OF THE TPO SO AS TO ALLOW THE ASSESSEE AN OPPORTUNITY TO EXAMINE THE INFORMATION OBTAINED BY THE TPO U/S 133 (6) OF THE ACT AND TO RE BUT THE CONCLUSION ARRIVED AT BY THE TPO. ITA NO.4597/DEL/2011 4 4. THE DETAILS OF THE COMPANIES WITH REGARD TO WHICH DATA, AS PER THE ASSESSEE, WAS GATHERED BY THE TPO U/S 133 (6) OF THE ACT, BUT NOT SHARED WITH THE ASSESSEE IN THE ASSESSMENT PROCEEDINGS, ARE BEING REPRODUCED HEREUNDER. THESE DETAILS ARE CONTAINED IN THE AFORESAID TWO LETTERS FILED BY THE ASSESSEE:- S.NO. NAME OF COMPANY INFORMATION SOUGHT UNDER 133 (6) OF THE ACT. COMPANY ACCEPTED/REJEC TED AS COMPARABLE BY THE LD. TPO 1. AKSHAY SOFTWARE TECHNOLOGIES LTD. ONSITE REVENUE DETAILS REJECTED 2. BODHTREE CONSULTING LTD. SEGMENTAL DETAILS ACCEPTED 3. CELESTIAL LABS LTD. FUNCTIONAL PROFILE ACCEPTED 4. COMPUTECH INTERNATIONAL LTD. [SOFTWARE DIVISION] FUNCTIONAL PROFILE REJECTED. 5. HCL COMNET SYSTEMS & SERVICES LTD. [SEG.] FINANCIAL DETAILS OF RELEVANT PERIOD ACCEPTED 6. HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. EMPLOYEE COST DETAILS & FUNCTIONAL PROFILE ACCEPTED 7. MEGASOFT LTD. FINANCIAL DETAILS OF RELEVANT PERIOD ACCEPTED 8. SCIENTIFIC-ATLANTA INDIA TECHNOLOGY PVT. LTD. RPT DETAILS REJECTED 9. THIRDWARE SOLUTIONS LTD. (SEG.) COMPLETE DETAILS ACCEPTED 10. VISHAL INFORMATION TECHNOLOGIES LTD. FUNCTIONAL PROFILE ACCEPTED 11. WIPRO LTD. (SEG.) SEGMENTAL DETAILS ACCEPTED 5. A PERUSAL OF THE TPOS ORDER DOES NOT SHOW THAT THE ASSESSEE WAS EVER PROVIDED WITH ANY OPPORTUNITY TO REBUT THE INFORMATION GATHERED BY THE TPO U/S 133 (6) OF THE ACT WITH REGA RD TO THE ABOVE- NAMED COMPANIES. THE LD. DRP HAS ALSO NOT TAKEN THIS ASPECT INTO CONSIDERATION. 6. THEREFORE, WE DEEM IT PROPER TO REMIT THIS MATTER TO THE FILE OF THE TPO TO BE DECIDED AFRESH IN ACCORDANCE WITH LAW, ON AFFORDING ITA NO.4597/DEL/2011 5 ADEQUATE OPPORTUNITY TO THE ASSESSEE TO REBUT THE INFO RMATION GATHERED BY THE TPO U/S 133 (6) OF THE ACT WITH REGA RD TO THE AFOREMENTIONED 11 COMPANIES. 7. IN THE RESULT, FOR STATISTICAL PURPOSES, THE APPEAL O F THE ASSESSEE IS TREATED AS ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 05.09.20 12. SD/- SD/- [J.S. REDDY] [A.D. JAIN] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, , 2012. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES