PRUDENTIAL PROCESS MANAGEMENT SERVICES INDIA P.LTD, MUMBAI V. DCIT RG 15(2)(2), MUMBAI

ITA 490/MUM/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6286 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2010-2011
• Appeal Filed On: 21-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY SINGH LD
• Assessee Lawyers: ARPIT AGGARWAL LD ARS
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 154

Judgement Text

1 PRUDENTIAL PROCESS MANAGEMENT SERVICES INDIA PVT. L TD. ASSESSMENT YEAR-2010-11 IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE HONBLE SHRI SAKTIJIT DEY, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.490/MUM/2015 ( / ASSESSMENT YEAR: 2010-11) PRUDENTIAL PROCESS MANAGEMENT SERVICES INDIA PRIVATE LIMITED PRUDENTIAL CENTRE AVENUE HIRANANDANI BUSINESS PARK POWAI, MUMBAI-400 076. / VS. D EPUTY COMMI SSIONER OF INCOME TAX - RANGE-15(2)(2) AAYKAR BHAVAN, M.K. ROAD MUMBAI-400 020. ! ./ ./PAN/GIR NO. AACCP-7204-Q ( /APPELLANT ) : ( / RESPONDENT ) & ./ I.T.A. NO.1150/MUM/2015 ( / ASSESSMENT YEAR: 2010-11) D EPUTY COMMISSIONER OF INCOME TAX - RANGE-15(2)(2) AAYKAR BHAVAN, M.K. ROAD MUMBAI-400 020. / VS. PRUDENTIAL PROCESS MANAGEMENT SERVICES INDIA PRIVATE LIMITED PRUDENTIAL CENTRE AVENUE HIRANANDANI BUSINESS PARK POWAI, MUMBAI-400 076. ! ./ ./PAN/GIR NO. AACCP-7204-Q ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : DHANESH BAFNA & ARPIT AGGARWAL- LD. ARS / RESPONDENT BY : SANJAY SINGH - LD. CIT-DR / DATE OF HEARING : 20/12/2018 / DATE OF PRONOUNCEMENT : 24/01/2019 2 PRUDENTIAL PROCESS MANAGEMENT SERVICES INDIA PVT. L TD. ASSESSMENT YEAR-2010-11 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER):- 1. THESE ARE CROSS APPEALS FOR ASSESSMENT YEAR [AY] 2010-11 WHICH CONTEST FINAL ASSESSMENT ORDER DATED 31/12/2014 PAS SED LD. DEPUTY COMMISSIONER OF INCOME TAX-15(2)(2) U/S 143(3) READ WITH SECTION 144C(13) PURSUANT TO THE DIRECTIONS OF LD. DISPUTE RESOLUTION PANEL-III, MUMBAI [DRP] DATED 14/11/2014. 2.1 THE BRIEF BACKGROUND IS THAT THE ASSESSEE BEING RESIDENT CORPORATE ENTITY STATED TO BE ENGAGED IN RENDERING TRANSACTION PROCESSING SERVICES WAS FINALLY ASSESSED U/S 143(3) READ WITH SECTION 144C(13) AT RS.739.93 LACS AFTER CERTAIN TRANSFER PRICING [TP] ADJUSTMENT OF RS.575.20 LACS AS AGAINST RETURNED INCOME OF RS.167.33 LACS E-FILED BY THE ASSESSEE ON 28/09/2010. THE ASSESSEE WAS STATED TO BE CAPTIVE B ACK-OFFICE SUPPORT SERVICE PROVIDER, PROVIDING CALL CENTER AND OTHER B ACK-OFFICE SERVICES TO ITS GROUP COMPANIES IN UK REGION . THE SERVICES RENDERED BY ASSESSEE HAS BEEN CLASSIFIED AS INFORMATION TECHNOLOGY ENABLED SERVICES [ITES]. THE ASSESSEE IS INDIRECT SUBSIDIARY OF PRUDENTIAL PLC. UK AND IT PROVIDES CALL CENTER SERVICES AND OTHER BACK OFFICE SERVICES TO P RUDENTIAL GROUP OF COMPANIES IN THE UK AND ELSEWHERE AND ACCORDINGLY, IT HAS BEEN CLASSIFIED AS LOW RISK CAPTIVE ITES PROVIDER . THE ASSESSEE HAS ALSO CLAIMED DEDUCTION U/S 10A IN RESPECT OF INCOME EARNED FROM THESE ACTIVITIES. 2.2 THE INTERNATIONAL TRANSACTIONS CARRIED OUT BY T HE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES [AE] WERE SUBJECT MATTER OF REFERENCE U/S 92CA (1) 3 PRUDENTIAL PROCESS MANAGEMENT SERVICES INDIA PVT. L TD. ASSESSMENT YEAR-2010-11 TO LD. TRANSFER PRICING OFFICER-II(2), MUMBAI ON 04/09/2012. THE ASSESSEES TRANSFER PRICING [TP] DOCUMENTATION REVEALED THAT THE ASSESSEE EARNED INCOME FROM RENDERING OF SERVICES AMOUNTING TO RS.5 167.76 LACS AND ARRIVED AT ITS OWN PROFIT LEVEL INDICATOR [PLI] BASED ON OP/TC AS 22.12% AS AGAINST THREE-YEAR WEIGHTED MARGIN OF 13.75% REFLEC TED BY COMPARABLE COMPANIES. THE ASSESSEES PLI WAS ARRIVED AT AFTER CONSIDERING FOREIGN EXCHANGE GAINS OF RS.351.64 LACS ARISING OUT OF SETTLEMENT OF FORWARD CONTRACTS AS OPERATING INCOME . THE ASSESSEE ALSO PROPOSED THAT IF WHOLE OF FOREX GAIN EARNED BY IT WAS TO BE CONSIDERED AS OPERATING PROF IT, THE SAME WOULD FURTHER PUSH THE PLI TO 26%. HOWEVER, LD. TPO OPINED THAT ONLY THAT PART OF FOREX GAINS COULD BE CONSIDERED AS OPERATIN G IN NATURE WHICH WAS DIRECTLY RELATED TO ITS BUSINESS OPERATIONS AND THE REFORE, THIS PLEA WAS TO BE REJECTED. FINALLY, LD. TPO COMPUTED PLI OF 27.07% REFLECTED BY SET OF 11 COMPARABLE COMPANIES AS AGAINST ASSESSEES PLI OF 22.12% AND TP ADJUSTMENT, THUS, PROPOSED WORKED OUT TO RS.575.20 LACS COMPUTED IN THE FOLLOWING MANNER: - 2.3 ANOTHER TP ADJUSTMENT IS RELATED WITH OUTSTANDING RECEIVABLES . IT TRANSPIRED THAT DURING AY 2009-10, THE ASSESSEE SOL D ITS BUSINESS UNIT TO A THIRD PARTY. THIS TRANSACTION WAS CONSEQUENT TO THE SALE OF A BUSINESS UNIT BY ASSESSEES AE TO AE OF THE SAID THIRD PARTY. AFT ER CONSIDERING VALUATION OPERATING COST (A) RS. 45,19,53,885/- ALP MARGIN 27.07% ALP SALES AX1.2707 RS.57,42,97,802/- TRANSACTION VALUE RS.51,67,76,847/- 105% OF TRANSACTION VALUE RS.54,26,15,689/- 95% OF TRANSACTION VALUE RS.49,09,38,005/- TP ADJUSTMENT (ALP SALES TRANSACTION VALUE) RS.5, 75,20,955/- 4 PRUDENTIAL PROCESS MANAGEMENT SERVICES INDIA PVT. L TD. ASSESSMENT YEAR-2010-11 REPORT, IT CAME TO LIGHT THAT THE ASSESSEE DEVALUED ITS BUSINESS UNIT AND RECEIVED LESS SALE CONSIDERATION. ACCORDINGLY, AN A DJUSTMENT OF RS.104.03 CRORES WAS PROPOSED IN AY 2009-10. SINCE THE SAME R EMAINED OUTSTANDING, SECONDARY TP ADJUSTMENT REPRESENTING INTEREST ON OU TSTANDING RECEIVABLES WAS PROPOSED IN AY 2009-10. THE AMOUNT REMAINED OUT STANDING DURING IMPUGNED AY AS WELL AND THEREFORE, LD. TPO PROPOSED ADJUSTMENT AGAINST THE SAME @ 11.7% OF OUTSTANDING AMOUNT OF RS.104.03 CRORES WHI CH CAME TO RS.12.17 CRORES. 2.4 IN NUTSHELL, LD. TPO PROPOSED AGGREGATED TP ADJUSTMENT OF RS.17.92 CRORES VIDE ITS ORDER U/S 92CA(3) DATED 16/09/2013 WHICH COMPRISE-OFF OF TP ADJUSTMENT AGAINST SERVICES FOR RS.5.75 CRORES AND SECONDARY TP ADJUSTMENT AGAINST OUTSTANDING RECEIVABLES FOR RS.12.17 CRORES . THE SAME WAS INCORPORATED IN THE DRAFT ASSESSMENT ORDER DATE D 03/02/2014 WHICH WAS SUBJECTED TO OBJECTION BEFORE LD. DRP WHEREIN L D. DRP CONFIRMED PROPOSED TP ADJUSTMENT OF RS.5.75 CRORES, AGAINST W HICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 2.5 HOWEVER, LD. DRP, RELYING UPON ITS PREDECESSOR DRPS STAND FOR AY 2009-10, DELETED PROPOSED SECONDARY TP ADJUSTMENT O F RS.12.17 CRORES, AGAINST WHICH THE REVENUE IS IN FURTHER APPEAL BEFO RE US. BOTH THE REPRESENTATIVES CONVERGE ON THE POINT THAT THE MATT ER FOR AY 2009-10 WAS CHALLENGED BY REVENUE BEFORE THIS TRIBUNAL VIDE ITA NO. 2131/MUM/2014 ORDER DATED 13/04/2018 WHEREIN THE STAND OF LD. DRP GOT CONFIRMED BY WAY OF DISMISSAL OF REVENUES APPEAL. FOLLOWING THE TRI BUNALS ORDER FOR AY 2009-10, PROPOSED SIMILAR ADJUSTMENT IN AY 2011-12 HAS ALSO BEEN DELETED 5 PRUDENTIAL PROCESS MANAGEMENT SERVICES INDIA PVT. L TD. ASSESSMENT YEAR-2010-11 BY THE TRIBUNAL VIDE ITA NO. 5526/MUM/2015 ORDER DATED 13/04/2018. THE COPIES OF THE ORDER HAVE BEEN PLACED ON RECORD. IN VIEW OF THE ADMITTED POSITION, RESPECTFULLY FOLLOWING THE BINDING JUDICI AL PRECEDENT, WE CONFIRM THE STAND OF LD. DRP, IN THIS REGARD. SINCE THIS IS THE ONLY ISSUE IN REVENUES APPEAL, THE REVENUES APPEAL STANDS DISMISSED. 3. THE AUTHORIZED REPRESENTATIVE FOR ASSESSEE [AR], DURING THE COURSE OF HEARING, AT THE OUTSET, DREW OUR ATTENTION TO GROUND NUMBER-7 AND SUBMITTED THAT NO TP ADJUSTMENT WAS WARRANTED SINCE THE TRANSACTION VALUE FELL WITHIN THE RANGE OF + 5% CONSIDERING THE FOREX GAINS AS OPERATING IN NATURE WHICH HAS ALSO BEEN ACCEPTED BY LD. TPO. OUR ATTENTION HAS BEEN DRAWN TO THE FACT THAT THERE ARE COMPUTATIONAL ERRO RS SINCE ALTHOUGH FOREX GAINS OF RS.35.16 LACS EARNED BY THE ASSESSEE WERE ACCEPTED AS OPERATING INCOME BY WAY OF ACCEPTANCE OF PLI OF 22.12%, HOWEVER, WHILE COMPUTING THE RANGE OF + 5%, THE SAID GAINS WERE IGNORED. FOR THIS, THE ATTENTION IS DRAWN TO THE RECTIFICATION APPLICATION U/S 154 DATED 11/11/2013 FILED BEFORE TO LD. TPO AS KEPT IN THE PAPER-BOOK WHICH WAS PENDING AND NO ACTION WAS TAKEN AGAINST THE SAME. THE SUBMISSIO NS ARE FURTHER SOUGHT TO BE BOLSTERED ON THE STRENGTH OF ORDER OF LD. TPO FOR AY 2009-10, WHEREIN THE SIMILAR GAINS EARNED BY THE ASSESSEE WERE CONSI DERED WHILE WORKING OUT THE RANGE OF + 5%. PER CONTRA, LD. CIT-DR SUBMITTED THAT THE AFORESAID SUBMISSIONS WOULD REQUIRE VERIFICATION BY LOWER AUT HORITIES. 4. WE HAVE CAREFULLY HEARD THE RIVAL CONTENTIONS AN D PERUSED RELEVANT MATERIAL ON RECORD INCLUDING COMPUTATIONS MADE BY L D. TPO WHILE WORKING OUT THE RANGE OF + 5%. UPON PERUSAL, WE FIND SUBSTANTIAL FORCE IN THE 6 PRUDENTIAL PROCESS MANAGEMENT SERVICES INDIA PVT. L TD. ASSESSMENT YEAR-2010-11 ARGUMENT OF LD. AR IN VIEW OF THE FACT THAT FOREX GAINS EARNED BY THE ASSESSEE HAVE BEEN CONSIDERED AS OPERATING INCOME WHICH IS EVIDENT FROM THE FACT THAT PLI OF 22.12% AS COMPUTED BY THE ASSESSEE HAS BEEN ACCEPTED BY LD. TPO . THIS BEING THE CASE, THERE WOULD BE NO REASON AS TO WHY THE SAME SHOULD NOT BE CONSIDERED AS OPERATING INCOME WHILE WORKING OUT THE RANGE OF + 5%. THE LD. TPO HAS COMPUTED THE ALP SALES AS RS.57.42 CRORES AS AGAINST TRANSACTIONAL VALUE OF RS.55.18 CRORES REFLECTED BY THE ASSESSEE [INCLUSIVE OF FOREX GAINS OF RS.3.5 1 CRORES]. THE COMPUTATION WOULD SHOW THAT 105% OF THE TRANSACTION AL VALUE OF RS.55.18 CRORES REFLECTED BY THE ASSESSEE WOULD EXCEED ALP SALES OF RS.57.42 CRORES AND THEREFORE, THE ASSESSEE STOOD BENEFITTED BY SAFE HARBOR RANGE OF + 5% PROVIDED UNDER THE LAW. THIS BEING THE CASE, TH E IMPUGNED ADDITIONS COULD NOT BE SUSTAINED. WE ORDER SO. HAVI NG SAID SO, OTHER GROUNDS RAISED, IN THIS REGARD, REQUIRE NO FURTHER ADJUDICATION AND HENCE, NOT DEALT WITH. 5. THE ASSESSEE, BY WAY OF GROUND NO. 10, IS AGGRIE VED BY THE FACT THAT IT HAS BEEN GRANTED TDS CREDIT TO THE EXTENT OF RS.38.03 LACS ONLY AS AGAINST ITS CLAIM OF RS.49.96 LACS. WITHOUT DELVING MUCH DEEPER, LD. AO IS DIRECTED TO VERIFY THE CORRECT AMOUNT OF TDS WHICH THE ASSESSEE IS ELIGIBLE TO CLAIM AND GRANT THE CREDIT OF THE SAME. THIS GRO UND STAND ALLOWED FOR STATISTICAL PURPOSES. 6. IN GROUND NUMBER-11, THE ASSESSEE IS AGGRIEVED BY LEVY OF INTEREST U/S 234C. THE SAME, BEING MERELY CONSEQUENTIAL IN NATUR E, DO NOT REQUIRE ANY ADJUDICATION ON OUR PART. 7 PRUDENTIAL PROCESS MANAGEMENT SERVICES INDIA PVT. L TD. ASSESSMENT YEAR-2010-11 7. THE ASSESSEES APPEAL STANDS ALLOWED IN TERMS OU R ORDER. CONCLUSION 8. THE REVENUES APPEAL STANDS DISMISSED WHEREAS TH E ASSESSEES APPEAL STANDS ALLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JANUARY, 2019. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : SR.PS:-JAISY VARGHESE ! / COPY OF THE ORDER FORWARDED TO : 1. !% / THE APPELLANT 2. &'!% / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. ( )& * , * , / DR, ITAT, MUMBAI 6. ) ,-. / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI