Deputy Commissioner of Income-tax, V. M/s. Sungard Solutions Software (I) Pvt. Ltd., Pune

ITA 462/PUN/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2447 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 03-12-2018
• Assessment Year: 2011-2012
• Appeal Filed On: 17-03-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NANDITA KANCHAN
• Keywords: Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 462 /P U N/201 6 / ASSESSMENT YEAR : 20 11 - 12 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 6, PUNE . / APPELLANT VS. M/S. SUNGARD SOLUTIONS SOFTWARE (I) PVT. LTD., UPPER GROUND FLOOR TO 7 TH FLOOR, WEST END CENTR E ONE, SURVEY NO.169/1, SECTOR II, AUNDH, PUNE 411007 . / RESPONDENT PAN: AALCS0619K / APPELLANT BY : MS. NANDITA KANCHAN / RESPONDENT BY : S HRI DARPAN KIRPALANI / DATE O F HEARING : 13 . 0 2 .201 9 / DATE OF PRONOUNCEMENT: 12 . 0 3 .201 9 / ORDER PER SUSHMA CHOWLA, J M : THE APPEAL FILED BY REVENUE IS AGAINST ORDER OF D CIT , CIRCLE - 6, PUNE, DATED 1 8 . 0 1 .201 6 RELATING TO ASSESSMENT YEAR 20 11 - 12 PASSED UNDER SECTION 143(3) R.W.S. 144C OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2. THE REVENUE HAS FILED REVISED GROUNDS OF APPEAL , WHICH READ AS UNDER : - 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THIS C A SE AND IN LA W , THE LD. DRP WAS JUSTIFIED IN EXCLUDI NG INFORMED TEC H NO L OGIES LIMITED CONSIDERING IT A HIGH KPO COMPARABLE COMPANY AND FUNCTIONALLY DISSIMILAR TO THE ASSESSEE AND NOT CONSIDERING THE FACT THAT THE HON'B L E MUMBAI ITAT IN THE CASE OF VODAFONE IN DIA SERVICES VS DCIT (TS 95 ITA NO. 462 /P U N/20 1 6 M/S. SUNGARD SOLUTIONS SOFTWARE (I) PVT. LTD. 2 ITAT 2013 MUM) FOR AY 2007 - 08 HAS HELD THA T THE ABOVE COMPARABLE COMPANY HAS INCOME FROM KPO ACTIVITIES AND NOT FROM HIGH END KPO ACTIVITIES. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THIS CASE AND IN LAW, THE LD. DRP WAS JUSTIFIED IN EXCLUDING ECLERX SERVICES L TD. CONSIDER ING IT A FUNCTIONALLY DISSIMILAR COMPARABLE TO THE ASSESSEE AND ENGAGED IN KPO ACTIVITIES AND NOT CONSIDERING THE FACT THAT THE HON'B L E MUMBAI ITAT IN T HE CASE OF WI LLI S PROCESSING S ERVICES (I) PVT. LTD. VS DCIT (TS 49 ITAT 2013 MUM) FOR AY 2007 - 08 HAS HEL D THAT THE ABOVE COMPARABLE COMPANY IS NOT DISSIMILAR TO COMPANIES ENGAGED IN BPO ACTIVITIES 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THIS CASE AND IN LAW , THE LD. DRP WAS JUSTIFIED IN EXCLUDING FUNCTIONALLY COMPARABLE COMPANIES ON THE GROUND OF FUNCT IONAL DISSIMILARITY WITHOUT APPRECIATING THAT BOTH THE ASSESSEE AS WELL AS THE COMPARABLE COMPANIES ARE INVOLVED IN THE ACTIVITIES COVERED UNDER ITES ONE AND H ENCE BOTH THE COMPANIES ARE FUNCTIONALLY SIMILAR. 3. THE ISSUE RAISED BY REVENUE IS AGAINST EXCL USION OF INFORMED TECHNOLOGIES LTD. AND ECLERX SERVICES LTD. 4. BEFORE THE ARGUMENTS COULD BE OPENED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE MARGINS OF ASSESSE E WERE 17.50%, WHICH IS UNDISPUTED. HE FURTHER STATED THAT THE ASSESSING OFFICER / TRANSFER PRICING OFFICER (TPO) HAD SELECTED EIGHT CONCERNS TO BE FUNCTIONALLY COMPARABLE AND THE ARITHMETIC MEAN MARGINS OF SAID CONCERNS WORKS TO 18.77%. HE POINTED OUT T HAT THE DISPUTE RESOLUTION PANEL (DRP) HAD EXCLUDED TWO CONCERNS I.E. INFORMED TECHNOLOGIES LTD. AND ECLERX SERVICES LTD. IN CASE, THE TWO CONCERNS ARE EXCLUDED, THEN THE MARGINS WERE 13.50% AND IN CASE THE TWO CONCERNS ARE INCLUDED, THEN IT IS 18.77%. H E THUS, STATED THAT EVEN IF REVENUES APPEAL IS ALLOWED, THEN ALSO THE MARGINS SHOWN BY ASSESSEE WERE WITHIN +/ - 5% RANGE OF MEAN MARGINS OF COMPARABLES. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE LIMITED ISSUE WHICH ARISES IN THE PRESENT APPEAL IS WHETHER THE APPEAL OF REVENUE COULD BE ALLOWED WITHOUT GOING INTO MERITS / DEMERITS OF THE ISSUE ITA NO. 462 /P U N/20 1 6 M/S. SUNGARD SOLUTIONS SOFTWARE (I) PVT. LTD. 3 RAISED. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT SERVICES. THE CASE OF ASSESSEE WAS PICKED UP FOR SCRUTINY. SINCE IT HAD ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS, THE ASSESSING OFFICER MADE REFERENCE UNDER SECTION 92CA(1) OF THE ACT TO THE TPO. THE TPO MADE AN UPWARD ADJUSTMENT OF ARM'S LENGTH PRICE AT 6.47 CRORES. THE DRP GAVE CERTAIN DIRECTIONS TO THE ASSESSING OFFICER / TPO. CONSEQUENT THERETO, THE ASSESSMENT ORDER HAS BEEN PASSED. HOWEVER, WE ARE ABREAST OF THE APPEAL OF THE REVENUE AGAINST DIRECTIONS OF DRP, UNDER WHICH IT HAD DIRECTED EXCLUSIO N OF MARGINS OF TWO CONCERNS I.E. INFORMED TECHNOLOGIES LTD. AND ECLERX SERVICES LTD., FROM THE FINAL LIST OF COMPARABLES. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE US HAS FILED TABULATED DETAILS OF THE MARGINS OF COMPARABLES POS T GIVING EFFECT TO THE DRP DIRECTIONS, WHICH READ AS UNDER: - MARGIN AS PER AO ORDER AND TP ORDER SR. NO. NAME OF THE COMPANY REF MARGIN FY 2010 - 11 (%) 1 CALIBER POINT BUSINESS POINT SOLUTIONS LIMITED PG. 3 OF THE AO ORDER DATED 8 JANUARY 2016 POST GIVING EFFECT TO DRP DIRECTIONS 7.82 2 FORTUNE INFOTECH LIMITED PG. 3 OF THE AO ORDER DATED 8 JANUARY 2016 POST GIVING EFFECT TO DRP DIRECTIONS 14.49 3 JINDAL INTELLICOM PVT. LTD. PG. 3 OF THE AO ORDER DATED 8 JANUARY 2016 POST GIVING EFFECT TO DRP DIRECTIONS 10.19 4 E4E HEALTHCARE BUSINESS SERVICES PVT. LTD. PG. 3 OF THE AO ORDER DATED 8 JANUARY 2016 POST GIVING EFFECT TO DRP DIRECTIONS 8.50 5 INFOSYS BPO LTD. PG. 3 OF THE AO ORDER DATED 8 JANUARY 2016 POST GIVING EFFECT TO DRP DIRECTIONS 15.5 5 6 ACCENTIA TECHNOLOGY LTD. PG. 3 OF THE AO ORDER DATED 8 JANUARY 2016 POST GIVING EFFECT TO DRP DIRECTIONS 24.73 7 E CLERX SERVICES LTD. PG. 37 OF THE TP ORDER (BEFORE WORKING CAPITAL) 56.85 8 INFORMED TECHNOLOGIES INDIA LTD. PG. 37 OF THE TP ORDER (BEFORE WORKING CAPITAL) 12.06 ARITHMETIC MEAN (A) 18.77 SSSIPLS MARGIN 17.50 SSSIPLS MARGIN POST BENEFIT OF +/ - 5% (B) 23.38 SINCE (B) (A) INTERNATIONAL TRANSACTIONS ARE AT ARM'S LENGTH ITA NO. 462 /P U N/20 1 6 M/S. SUNGARD SOLUTIONS SOFTWARE (I) PVT. LTD. 4 6. AS AGAINST EIGHT COMPARABLES SELECTED BY THE ASSESSING OFFICER/TPO, THE DRP HAD ONLY CONSIDERED SIX COMPARABLES AND HAD ALSO GIVEN CERTAIN DIRECTIONS. THE MEAN MARGINS OF SAID COMPARABLES WORK OUT TO 13.50%. IN CASE, THE MARGINS OF TWO CONCERNS INFORMED TECHNOLOGIES LTD. AND E CLERX SERVICES LTD. BEFORE WORKING CAPITAL ADJUSTMENT ARE INCLUDED, THEN THE ARITHMETIC MEAN OF MARGINS OF THE COMPARABLES WORKS OUT TO 18.77%. IT MAY AGAIN BE POINTED OUT THAT IT IS AFTER GIVING EFFECT TO THE DIRECTIONS OF DRP IN RESPECT OF SIX COMPARABLES FINALLY SELECTED BY THE DRP. IN SUCH SCENARIO, THE MARGINS SHOWN BY THE ASSESSEE AT 17.50% ARE WITHIN +/ - 5% OF MEAN MARGINS SHOWN BY THE COMPARABLES. CONSEQUENTLY, WE HOLD THAT EVEN IF THE APPEAL OF REVENUE IS ALLOWED I.E. TWO CONCERNS ARE INCLUDED IN THE FINAL LIST OF COMPARABLES, THERE IS NO NECESSITY TO DECIDE THE ISSUE ON MERITS OF WHETHER THE SAID CONCERNS ARE TO BE EXCLUDED OR TO BE INCLUDED IN TH E FINAL LIST OF COMPARABLES, SINCE WHERE THE MARGINS ARE WITHIN +/ - 5% RANGE, THE ISSUE BECOMES ACADEMIC AS NO ADJUSTMENT IS TO BE MADE IN THE HANDS OF ASSESSEE. ACCORDINGLY, WE HOLD SO. HOWEVER, IN VIEW OF THE PECULIAR FACTS, THE GROUNDS OF APPEAL RAISE D BY REVENUE STAND ALLOWED. 7 . IN THE RESULT, THE APPEAL OF REVENUE IS ALLOWED. ORDER PRONOUNCED ON THIS 12 TH DAY OF MARCH , 201 9 . SD/ - SD/ - (ANIL CHATURVEDI) (SUSHMA CHOWLA) / ACC OUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 12 TH MARCH , 201 9 . GCVSR ITA NO. 462 /P U N/20 1 6 M/S. SUNGARD SOLUTIONS SOFTWARE (I) PVT. LTD. 5 / COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT ; 2. THE RESPO NDENT; 3. THE DRP - 3, MUMBAI ; 4. THE CONCERNED CIT, PUNE ; 5. THE DR B , ITAT, PUNE; 6. GUARD FILE. / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE