M/s Sling Media Pvt Ltd , Bangalore V. The Deputy Commissioner of Income Tax Circle-6(1)(1), Bangalore

ITA 488/BANG/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6809 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 23-04-2019
• Assessment Year: 2012-2013
• Appeal Filed On: 01-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: NARENDRA KUMAR J JAIN
• Keywords: Transfer pricing
• Section: 143(3); 234B; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR, JUDICIAL MEMBER IT (TP) A NO. 488 /BANG/201 7 ASSESSMENT YEAR :20 1 2 - 1 3 M/S. SLING MEDIA PVT. LTD., PSS PLAZA, WIND TUNNEL ROAD, OFF AIRPORT ROAD, BANGALORE 560 017. PAN: AACCD0297R VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 6 (1) (1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI NARENDRA KUMAR J JAIN, ADVOCATE RESPONDENT BY : MS. NEERA MALHOTRA, CIT (DR) DATE OF HEARING : 23 .04.201 9 DATE OF PRONOUNCEMENT : 25 .04.201 9 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE ASSESSEE AND THE SAME IS DIRECTED AGAINST THE ASSESSMENT ORDER DATED 29.12.2016 PASSED BY THE AO U/S. 143(3) R.W.S. 144C (13) OF THE IT ACT, 1961 FOR ASSESSMENT YEAR 2012-13 AS PER THE DIRECTIONS OF DRP. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER. GENERAL GROUNDS 1. THE ORDERS PASSED BY LEARNED THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-6(1)(1) , BANGALORE (HEREINAFTER REFERRED TO AS 'AO' FOR BREVITY), LEARNED DEPUTYCOMMISSIONER OF INCOME TAX, TRANSFER PRICING-2(2)(2), BANGALORE (HEREINAFTERREFERRED TO AS 'TPO' FOR BREVITY) AND HONORABLE DISPUTE RESOLUTION PANEL-2(HEREINAFTER REFERRED TO AS HONORABLE DRP) ('AO 'TPO' AND 'DRP' COLLECTIVELYREFERRED AS 'LOWER AUTHORITIES' FOR BREVITY) ARE BAD IN LAW AND LIABLE TO BE QUASHED. 2. THE LEARNED AO HAS ERRED IN MAKING A REFERENCE TO TPO FOR DETERMINING ARM'S LENGTH PRICE WITHOUT DEMONSTRATING AS TO WHY IT WAS NECESSARY AND EXPEDIENT TODO SO. THE DRP HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER. IT(TP)A NO.488/BANG/2017 PAGE 2 OF 6 3. THE LOWER AUTHORITIES HAVE ERRED IN: A. MAKING TRANSFER PRICING ADJUSTMENT OF RS. 3,68,52,323/-; B. ADOPTING FLAWED METHODOLOGY FOR ISSUING NOTICE ULS 133(6) AND RELYING ONTHE INFORMATION COLLECTED U/S 133(6) WITHOUT PROVIDING THE APPELLANTCOMPLETE INFORMATION AND AN OPPORTUNITY TO CROSS EXAMINE THE COMPANIESCONCERNED OR THEIR AUTHORIZED REPRESENTATIVES. GROUNDS RELATING TO COMPUTATION OF ALP 4. THE LOWER INCOME TAX AUTHORITIES HAVE ERRED IN: A. REJECTING COMPARABLES SELECTED AND TRANSFER PRICING ANALYSIS UNDERTAKEN BYTHE APPELLANT ON UNJUSTIFIABLE GROUNDS. THE LOWER INCOME TAX AUTHORITIESHAVE ERRED IN REJECTING FOLLOWING COMPANIES AS COMPARABLES: I. AKSHAY SOFTWARE TECHNOLOGIES LIMITED II. EVOKE TECHNOLOGIES PRIVATE LIMITED III. KALS INFORMATION SYSTEMS LIMITED IV. LUCID SOFTWARE LIMITED V. THINKSOFT GLOBAL SERVICES LIMITED B. CONDUCTING A FRESH TRANSFER PRICING ANALYSIS DESPITE ABSENCE OF ANY DEFECTSIN THE TRANSFER PRICING ANALYSIS SUBMITTED BY THE APPELLANT; C. ADOPTING INAPPROPRIATE FILTERS LIKE 25% RPT FILTER, ONE SIDED TURNOVER FILTER,ETC. IN THE PROCESS OF SELECTING COMPARABLES; D. ADOPTING COMPANIES AS COMPARABLES EVEN THOUGH THEY ARE NOT COMPARABLEIN RESPECT OF FUNCTIONS PERFORMED, RISKS ASSUMED, ASSETS UTILIZED, SIZE,TURNOVER, DESPITE HAVING UNUSUAL BUSINESS CIRCUMSTANCES OR HIGH MARGINS,ETC. THE LOWER INCOME TAX AUTHORITIES HAVE ERRED IN ADOPTING FOLLOWINGCOMPANIES AS COMPARABLES: I. INFOSYS LTD. II. PERSISTENT SYSTEMS LTD. III. LARSEN & TOUBRO INFOTECH LTD. E. INAPPROPRIATELY COMPUTING THE OPERATING MARGINS OF THE COMPARABLES BYCONSIDERING PROVISION FOR BAD AND DOUBTFUL DEBT AS NON-OPERATING IN NATURE; F. TREATING FOREIGN EXCHANGE GAIN OR LOSS AS NON-OPERATING IN NATURE WHILECOMPUTING OPERATING MARGIN OF THE APPELLANT AND THE COMPARABLES; G. NOT MAKING PROPER ADJUSTMENT FOR ENTERPRISE LEVEL AND TRANSACTIONAL LEVELDIFFERENCES BETWEEN THE APPELLANT AND THE COMPARABLE COMPANIES; AND H. NOT RECOGNIZING THAT THE APPELLANT WAS INSULATED FROM RISKS, AS AGAINSTCOMPARABLES, WHICH ASSUME THESE RISKS AND THEREFORE HAVE TO IT(TP)A NO.488/BANG/2017 PAGE 3 OF 6 BE CREDITEDWITH A RISK PREMIUM ON THIS ACCOUNT. GROUND RELATING TO CORPORATE TAX 5. THE LOWER AUTHORITIES HAVE ERRED IN LEVYING A SUM OF RS:70,43,778/- AS INTERESTUNDER SECTION 234B AND A SUM OF RS. 33,5511- AS INTEREST UNDER SECTION 234C.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, INTEREST UNDER SECTION 234BAND 234C IS NOT LEVIABLE. THE APPELLANT DENIES ITS LIABILITY TO PAY INTEREST UNDERSECTION 234B AND 234C. EVEN OTHERWISE THE AMOUNT COMPUTED AS INTEREST ISEXCESSIVE. THE APPELLANT SUBMITS THAT EACH OF THE ABOVE GROUNDS/ SUB-GROUNDS ARE INDEPENDENT ANDWITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMIT, SUBSTITUTE OR AMEND THE ABOVEGROUNDS OF APPEAL, AT ANY TIME BEFORE OR AT. THE TIME OF HEARING, OF THE APPEAL, SO AS TOENABLE THE INCOME-TAX APPELLATE TRIBUNAL TO DECIDE THE APPEAL ACCORDING TO LAW. THE APPELLANT PRAYS ACCORDINGLY. 3. AT THE VERY OUTSET, IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT THE ASSESSEE IS PRESSING ONLY GROUND NO. 4(D) AS PER WHICH THE ASSESSEE IS REQUESTING FOR EXCLUSION OF THREE COMPARABLES I) INFOSYS LTD. II) PERSISTENT SYSTEMS LTD., III) LARSEN & TOUBRO INFOTECH LTD. AND THE REMAINING GROUNDS ARE NOT PRESSED. ACCORDINGLY ALL THE GROUNDS EXCEPT GROUND NO. 4(D) ARE REJECTED AS NOT PRESSED. 4. REGARDING GROUND NO. 4(D) I.E. IN RESPECT OF EXCLUSION OF THREE COMPARABLES AS NOTED ABOVE, IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT THE ISSUE IN THIS REGARD IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL ORDER RENDERED IN THE CASE OF CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTANTS PVT. LTD. VS. ACIT AS REPORTED IN TS-320-ITAT-2018(BANG)-TP, COPY AVAILABLE ON PAGES 774 TO 803 OF THE PAPER BOOK. HE ALSO SUBMITTED THAT THE RELEVANT PORTION OF THIS TRIBUNAL ORDER IS CONTAINED IN PARAS 28 TO 30 OF THIS TRIBUNAL ORDER AVAILABLE ON PAGES 788 TO 790 OF PAPER BOOK. HE ALSO SUBMITTED THAT THIS TRIBUNAL ORDER IS FOR THE SAME ASSESSMENT YEAR I.E. 2012-13 AND THE ASSESSEES PROFILE IS SAME. THE LD. DR OF REVENUE SUPPORTED THE ORDER OF AO/TPO AND DRP. IT(TP)A NO.488/BANG/2017 PAGE 4 OF 6 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THE TRIBUNAL ORDER CITED BY LD. AR OF ASSESSEE IS FOR TWO ASSESSMENT YEARS 2010-11 AND 2012- 13 WHEREAS IN THE PRESENT CASE ALSO, THE ASSESSMENT YEAR INVOLVED IS 2012-13. IT IS ALSO SEEN THAT AS PER PARAS 28 TO 30 OF THIS TRIBUNAL ORDER, THE ISSUE IN DISPUTE DECIDED BY TRIBUNAL IS REGARDING EXCLUSION OF SAME THREE COMPARABLES I) INFOSYS LTD., II) PERSISTENT SYSTEMS LTD. AND III) LARSEN & TOUBRO INFOTECH LTD. FOR AND THE FUNCTIONAL PROFILE OF THAT ASSESSEE AND THE PRESENT ASSESSEE IS SAME I.E. SOFTWARE DEVELOPMENT SERVICES. HENCE, IN OUR CONSIDERED OPINION, THIS TRIBUNAL ORDER IS APPLICABLE IN THE PRESENT CASE. THE RELEVANT PORTION OF THIS TRIBUNAL ORDER BEING PARAS 28 TO 30 ARE REPRODUCED HEREINBELOW. 28. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE COMPARABILITY OF THE 3COMPANIES OUT OF THE AFORESAID 4 COMPANIES WHICH THE ASSESSEE SEEKS TO EXCLUDE FROM THELIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO VIZ., INFOSYS LTD., LARSEN & TOUBROINFOTECH LTD. AND PERSISTENT SYSTEMS LTD., WERE CONSIDERED BY THE ITAT DELHI BENCH IN THE CASE OF AGILIS INFORMATION TECHNOLOGIES INDIA (P) LTD. VS. ACIT (2018) 89 TAXMANN.COM 440 (DELHI-TRIB.) FOR THE SAME AY 2012-13. IN THIS REGARD, IT WAS SUBMITTED THAT THE FUNCTIONAL PROFILE OF THE ASSESSEE IS SAME AS THAT OF THE ASSESSEE IN THE CASE OF AGILIS INFORMATION TECHNOLOGIES INDIA (P) LTD., IS IDENTICAL IN AS MUCH AS THE SAID COMPANY WAS ALSO INVOLVED IN PROVIDING SWD SERVICES TO ITS AE AND THE TPO HAD CHOSEN16 COMPARABLE COMPANIES OUT OF WHICH 6 COMPANIES CHOSEN BY THE TPO IN THE CASE OF THE ASSESSEE FOR THE PURPOSE OF COMPARABILITY WERE THE SAME, HIS SUBMISSION WAS THAT THE DECISION RENDERED BY THE TRIBUNAL IN THE CASE OF AGILIS INFORMATION TECHNOLOGIES INDIA (P) LID., (SUPRA) WOULD BE EQUALLY APPLICABLE TO THE ASSESSEE IN THE PRESENT CASE ALSO. THE LEARNED DR SUBMITTED THATTHE DRP IN ITS DIRECTIONS HAS MERELY ACCEPTED WITH THEREASONING OF THE TPO AND THEREFORE THE ISSUE OF EXCLUSION OF THESE COMPANIES SHOULD BE DIRECTED TOBE EXAMINEDAFRESH BY THEDRP. 29. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN THE CASE OF AGILIS INFORMATION TECHNOLOGIES INDIA (P) LTD. (SUPRA), THIS TRIBUNAL CONSIDERED THE COMPARABILITY OF THE 3 COMPANIES WHICH THE ASSESSEE SEEKS TO EXCLUDE FROM THE FINAL LIST OF COMPARABLE COMPANIESCHOSEN BY THE TPO. THE FUNCTIONAL PROFILE OF THE ASSESSEE AND THAT OF THE ASSESSEE IN THE CASE OF AGILIS TECHNOLOGIES INDIA (P) LTD., IS IDENTICAL IN AS MUCH AS THE SAID COMPANY WAS ALSO INVOLVED IN PROVIDING SWD SERVICES TO ITS AE AND THE TPO HAD CHOSEN SOME COMPARABLE COMPANIES WHICH WERE ALSO CHOSEN BY THE TPO IN THE CASE OF THE IT(TP)A NO.488/BANG/2017 PAGE 5 OF 6 ASSESSEE FORTHE PURPOSE OF COMPARABILITY. IN THE AFORESAID DECISION THE TRIBUNAL HELD ON THECOMPARABILITY OF THE 3 COMPANIES WHICH THE ASSESSEE SEEKS TO EXCLUDE AS FOLLOWS: (A) INFOSYS LTD., WAS EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES BY FOLLOWINGTHE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. AGNITY INDIA TECHNOLOGIES (2013) 36 TAXMANN.COM 289 (DELHI). THE DISCUSSION IS CONTAINED INPARAGRAPHS 4.5 TO 4.7 OF THE TRIBUNAL'S ORDER. THE TRIBUNALACCEPTED THAT INFOSYSLTD. IS A GIANTRISKTAKINGCOMPANY AND ENGAGED IN DEVELOPMENT AND SALE OF SOFTWAREPRODUCTS AND ALSO OWNS INTANGIBLE ASSETS AND THEREFORE NOT COMPARABLE WITH ASOFTWARE DEVELOPMENT SERVICE PROVIDER SUCH AS THE ASSESSEE IN THAT CASE. (B) LARSENT & TOURBRO INFOTECH LTD., WAS EXCLUDED FROM THE LIST OF COMPARABLECOMPANIES BY RELYING ON THE DECISION OF THEDELHI BENCH OF ITAT IN THE CASE OFSAXO INDIA (P) LTD. VS. ACIT (2016) 67 TAXMANN.COM 155 (DEL-TRI). THE DISCUSSIONISCONTAINED IN PARAGRAPHS 4.8 TO 4.10 OF THE TRIBUNAL'S ORDER. THE TRIBUNAL HELD THATL &T INFOTECH LTD., WAS A SOFTWARE PRODUCT COMPANY AND SEGMENTAL INFORMATION ON SWD SERVICES WAS NOT AVAILABLE. THE TRIBUNAL ALSO NOTICED THAT THE APPEAL FILED BY THE REVENUE AGAINST THE TRIBUNALS ORDER WAS DISMISSED BY THE HONBLE DELHI HIGH COURT IN ITA NO. 682/2016. (C) PERSISTENT SYSTEMS LTD.,WASEXCLUDED FROM THE LIST OF COMPARABLE COMPANIES ONTHE GROUND THAT THIS COMPANY WAS A SOFTWARE PRODUCT COMPANY AND SEGMENTALINFORMATION ON SWD SERVICES WAS NOT AVAILABLE. THE TRIBUNAL IN COMING TO THEABOVE CONCLUSION REFERRED TO THE DECISION RENDERED BY ITAT DELHI BENCH IN THE CASEOF CASH EDGE INDIA PVT.LTD. VS. ITOITA NO.64/DEL/2015 ORDER DATED 23.9.2015 ANDTHE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF SAXO INDIA PVT.LTD. (SUPRA).THE FINDINGS IN THIS REGARD ARE CONTAINED IN PARAGRAPHS 4.14 TO 4.16 OF ITS ORDER. 30. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL WE HOLD THAT THE AFORESAID 3COMPANIES BE EXCLUDED FROM THE FINAL LIST OF COMPARABLE COMPANIES FOR THE PURPOSE OFARRIVING AT THE ARITHMETIC MEAN OF COMPARABLE COMPANIES FOR THE PURPOSE OF COMPARISONWITH THE PROFIT MARGINS.IN THIS REGARD WE ARE ALSO OF THE VIEW THAT THE PLEA OF THE LEARNED DR FOR A REMAND OF THE ISSUE TO THE DRP ON THE GROUND THAT THE DRP HAS NOT GIVEN ANY REASONS IN ITS DIRECTIONS CANNOT BE ACCEPTED. THE DRP HAS ENDORSED THE VIEW OF THE TPO IN ITS DIRECTIONS AND THEREFORE THE REASONS GIVEN BY THE TPO SHOULD BE REGARDED AS THE CONCLUSIONS OF THE DRP. IT(TP)A NO.488/BANG/2017 PAGE 6 OF 6 6. WE HAVE SEEN THAT THIS TRIBUNAL ORDER IS FOR THE SAME ASSESSMENT YEAR AND THE FUNCTIONAL PROFILE OF THE PRESENT ASSESSEE AND THAT ASSESSEE IS SIMILAR AND THEREFORE, RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER, WE HOLD THAT IN THE PRESENT CASE ALSO, THESE THREE COMPARABLES I.E. I) INFOSYS LTD., II) PERSISTENT SYSTEMS LTD. AND III) LARSEN & TOUBRO INFOTECH LTD. BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES FOR THE PURPOSE OF ARRIVING AT ALP. GROUND NO. 4(D) IS ALLOWED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE. SD/- SD/- (LALIET KUMAR) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 25 TH APRIL, 2019. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.