Ariba India Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 5201/DEL/2012

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4278 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 20-07-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 08-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMRENDER KUMAR
• Assessee Lawyers: VISHU GOEL
• Keywords: Transfer pricing; Opportunity of being heard; International transaction
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-1 : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI SUDHANSHU SRIVASTAV, JUDICIAL MEMBER ITA NO.5201/DEL/2012 ASSESSMENT YEAR : 2007-08 ARIBA INDIA PVT. LTD., REGUS BUSINESS, 15 TH FLOOR, EROS CORPORATE TOWERS, NEHRU PLACE, NEW DELHI. PAN: AAACF4192P VS. DCIT, CIRCLE-12(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MANONEET DALAL, SHRI ASHU CHOKHA NI, CA & SHRI VISHU GOEL DEPARTMENT BY : SHRI AMRENDER KUMAR, CIT, DR & SHRI KUMAR PRANAV, SR.DR DATE OF HEARING : 21.09.2017 DATE OF PRONOUNCEMENT : 25.09.2017 ORDER PER R.S. SYAL, VP: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER PASSED BY THE CIT (A) ON 31.07.2012 IN RELATION TO THE ASS ESSMENT YEAR 2007-08. ITA NO.5201/DEL/2012 2 2. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAIN ST THE CONFIRMATION OF TRANSFER PRICING ADDITION TO THE EXTENT OF RS.35,44 ,190/-. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A SUBSIDIARY OF ARIBA INC., USA AND IS ENGAGED IN PRO VIDING SPEND MANAGEMENT SOLUTIONS IN THE INDIAN MARKET; PROVISIO N OF ONLINE AUCTION; BID EVALUATION SERVICES; AND CAPTIVE IT ENABLED SU PPORT SERVICES TO ITS ASSOCIATED ENTERPRISES (AES). CERTAIN INTERNATIONA L TRANSACTIONS WERE REPORTED BY THE ASSESSEE IN FORM NO. 3CEB. THE ASS ESSING OFFICER (AO) MADE REFERENCE TO THE TRANSFER PRICING OFFICER (TPO ) FOR DETERMINING THE ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANS ACTIONS. THE DISPUTE IN THIS APPEAL IS IN ONLY RESPECT OF INTERNATIONAL TRA NSACTION OF PROVISION OF IT ENABLED SERVICES WITH TRANSACTED VALUE OF RS.5 ,45,07,381/-. THE ASSESSEE SELECTED ITSELF AS THE TESTED PARTY AND AP PLIED TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD . ITS OWN PROFIT LEVEL INDICATOR (PLI) OF OPERATING PROFIT (OP) TO T OTAL COSTS (TC) AT 17% WAS SHOWN TO BE FAVOURABLE WITH THE PLI OF COMPARAB LES. ON THIS BASIS, IT WAS CLAIMED THAT THE INTERNATIONAL TRANSACTION WAS AT ALP. THE TPO MADE CERTAIN VARIATIONS IN THE COMPARABLES CHOSEN BY THE ASSESSEE. APPLYING ITA NO.5201/DEL/2012 3 THE ARMS LENGTH MARGIN RATE OF 28.11% OF SUCH COMP ARABLES, THE TPO WORKED OUT THE ALP OF THE PROVISION OF IT ENABLED SERVICES AT RS.5,96,83,251/ AS AGAINST THE TRANSACTED VALUE AT RS.5,45,07,381/-. THE TPO, THUS, PROPOSED TRANSFER PRICING ADJUSTMENT OF RS.51,75,870/-. THE LD. CIT(A) REDUCED THE TRANSFER PRICING ADDITION TO RS.35,44,190/-, AGAINST WHICH THE ASSESSEE HAS COME UP IN APPEAL BE FORE THE TRIBUNAL. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE ON THE APPL ICATION OF THE TNMM AS THE MOST APPROPRIATE METHOD OR THE ASSESSEES OW N COMPUTATION OF PLI. IN FACT, THE ONLY ISSUE RAISED BY THE LD. AR DURING THE COURSE OF INSTANT APPELLATE PROCEEDINGS IS TO PLEAD FOR THE EXCLUSION OF E-CLERX SERVICES LTD. FROM THE FINAL LIST OF COMPARABLES DRAWN BY THE TPO . FOR MAKING A PROPER EVALUATION OF THE COMPARABILITY OR OTHERWISE OF THI S COMPANY, LET US HAVE A LOOK AT THE FUNCTIONAL PROFILE OF THE ASSESSEE OF T HIS INTERNATIONAL TRANSACTION. IT CAN BE SEEN FROM THE ASSESSEES TR ANSFER PRICING STUDY REPORT THAT IT PROVIDES, INTER ALIA , CAPTIVE IT ENABLED SUPPORT SERVICES TO ITS GROUP COMPANIES. VARIOUS SERVICES PROVIDED BY THE ASSESSEE WITHIN THIS SEGMENT CAN BE CATEGORIZED INTO FIVE BROADER C ATEGORIES, VIZ., LEGAL ITA NO.5201/DEL/2012 4 SUPPORT SERVICES, PRICING ANALYSIS, FINANCIAL ANALY SIS, GLOBAL SOURCING SUPPORT AND IT SUPPORT. UNDER THE LEGAL SUPPORT SE RVICES, THE ASSESSEE PROVIDES ASSISTANCE WITH THE DRAFTING AND REVIEWING OF THE LEGAL CONTRACTS ENTERED INTO BY VARIOUS ARIBA GROUP COMPANIES. THI S INCLUDES THE SALES CONTRACTS AS WELL AS THE PURCHASE CONTRACTS WITH VA RIOUS VENDORS. IN PROVIDING SUCH SERVICES, THE ASSESSEE USES THE PRE- EXISTING TEMPLATES FOR CONTRACTS. UNDER PRICING SUPPORT SERVICES, THE ASS ESSEE RENDERS PRE-SALE SUPPORT AND POST-SALE SUPPORT SERVICES. THE SALE T EAM OF THE ASSESSEE SPECIFIES VARIOUS PARAMETERS LIKE DETAILS OF THE SO LUTIONS SOLD, LEVEL OF SUPPORT PROVIDED ETC. BASED ON WHICH THE FINAL QUOT E IS ARRIVED AT. IN THE POST-SALE SERVICES, THE PRICING TEAM REVIEWS THE SA LE CONTRACTS ENTERED INTO WITH THE CUSTOMERS TO ENSURE THAT THE FINAL TERMS A ND CONDITIONS ARE SAME AS AGREED THROUGH THE APPROVAL PROCESS. UNDER THE THIRD CATEGORY OF FINANCIAL ANALYSIS, THE ASSESSEE PROVIDES ACCOUNTIN G AND DATA ANALYSIS SERVICES FOR THE ASIA PACIFIC REGION. MAIN FUNCTION S PERFORMED UNDER THIS CATEGORY OF SERVICES ARE BUDGET ANALYSIS, SALES FOR ECASTING, DELIVERY MATRIX ANALYSIS, INVOICING & ACCOUNTS RECEIVABLE AN ALYSIS, REVENUE ANALYSIS AND OVERALL AR MANAGEMENT. UNDER THE FOURT H CATEGORY OF ITA NO.5201/DEL/2012 5 GLOBAL SOURCING, THE OPERATIONS OF THE ASSESSEE INV OLVE PROVISION OF SUPPORT SERVICES FOR ONLINE COMPETITIVE BIDDING EVE NTS. THE ASSESSEE IDENTIFIES THE PROSPECTIVE SUPPLIERS IN INDIA; MANA GES AND TRAINS SUPPLIERS IN THE ARIBA OFFERINGS; AND PROVIDES SUPPORT TO THE SUPPLIERS DURING AN EVENT AUCTION. THE LAST CATEGORY OF IT SUPPORT SER VICES INCLUDES APPLICATION SUPPORT, SOFTWARE DOCUMENTATION AND TES TING SERVICES ETC. ON GOING THROUGH THE ABOVE NATURE OF SERVICES RENDERED BY THE ASSESSEE UNDER THE OVERALL INTERNATIONAL TRANSACTION OF PROVISION OF IT ENABLED SERVICES, IT BECOMES CLEAR THAT THE ASSESSEE IS MAINLY SUPPOR TING THE SALES ACTIVITY AND ALSO MAINTAINING ACCOUNTS ETC. OF ITS ASSOCIATE D ENTERPRISES. 5. WITH THE ABOVE BACKGROUND IN MIND OF THE FUNC TIONAL PROFILE OF THE ASSESSEE UNDER THIS INTERNATIONAL TRANSACTION, LET US EXAMINE THE COMPARABILITY OR OTHERWISE OF E-CLERX SERVICES LTD. THIS COMPANY WAS CHOSEN BY THE TPO AS COMPARABLE. THE ASSESSEE OBJE CTED TO THE SAME BY CONTENDING THAT E-CLERX IS FUNCTIONALLY DIFFERENT. THE TPO COLLECTED SOME INFORMATION FROM THE COMPANY U/S 133(6) OF THE ACT. HE DID NOT ACCEPT THE ASSESSEES ARGUMENT AND FINALLY INCLUDED THIS C OMPANY IN THE LIST OF COMPARABLES. NO RELIEF WAS ALLOWED IN THE FIRST APP EAL. ITA NO.5201/DEL/2012 6 6. HAVING HEARD BOTH THE SIDES AND PERUSED THE RELE VANT MATERIAL ON RECORD, IT CAN BE SEEN FROM THE ANNUAL REPORT OF TH IS COMPANY, A COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK, THAT IT PA ID OUTSOURCING CHARGES TO THE TUNE OF RS.8 CRORE AND ODD IN ADDITION TO PA YMENT OF SALARY AND WAGES ETC. TO ITS STAFF, INCLUDING DIRECTORS REMUN ERATION, TO THE TUNE OF RS.24.54 CRORE. THIS DIVULGES THAT ROUGHLY 26% OF THE ACTIVITY CARRIED OUT BY THIS COMPANY HAS BEEN OUTSOURCED. AS AGAINST TH IS, THE ASSESSEE IS DOING THE ENTIRE BUSINESS AT ITS OWN WITHOUT THERE BEING ANY EXPENDITURE ON OUTSOURCING. THIS REVEALS A SIGNIFICANT DIFFERE NCE IN THE BUSINESS MODEL ADOPTED BY THE ASSESSEE AND E-CLERX SERVICES LTD. THE HON'BLE DELHI HIGH COURT IN RAMPGREEN SOLUTIONS PVT. LTD . VS. CIT (2015) 377 ITR 533 (DEL) EXCLUDED VISHAL INFORMATION TECHNOLOGY LTD. FROM T HE LIST OF COMPARABLES ON ACCOUNTS OF ITS DIFFERENT BUSINE SS MODEL, NAMELY, MORE OF OUTSOURCING THAN IN-HOUSE SERVICES. WHEN WE ADV ERT TO THE FACTS OF THE INSTANT CASE, WE FIND THAT E-CLERX SERVICES LTD. HA S ALSO SPENT MORE THAN 26% OF THE TOTAL COST OF THE EMPLOYEES AND JOB WORK CHARGES SIMPLY ON OUTSOURCING. SINCE THE BUSINESS MODEL OF E-CLERX SE RVICES PVT. LTD. IS SIGNIFICANTLY DIFFERENT FROM THAT OF THE ASSESSEE, WHICH IS NOT OUTSOURCING ITA NO.5201/DEL/2012 7 ANY OF ITS WORK, THE SAME, IN OUR CONSIDERED OPINIO N, RENDERS IT NON- COMPARABLE. WE, THEREFORE, DIRECT TO EXCLUDE THIS COMPANY FROM THE FINAL SET OF COMPARABLES. 7. TO SUM UP, WE SET ASIDE THE IMPUGNED ORDER ON TH E ISSUE OF ADDITION TOWARDS TRANSFER PRICING ADJUSTMENT IN THE INTERNAT IONAL TRANSACTION OF PROVISION OF IT ENABLED SERVICES AND REMIT THE MA TTER TO THE FILE OF AO/TPO FOR FRESH DETERMINATION OF ITS ALP IN CONSO NANCE WITH OUR ABOVE DIRECTIONS. NEEDLESS TO SAY, THE ASSESSEE WI LL BE ALLOWED A REASONABLE OPPORTUNITY OF BEING HEARD IN SUCH FRESH PROCEEDINGS 8. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIST ICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 25.09.201 7. SD/- SD/- [SUDHANSHU SRIVASTAVA] [R.S. SYA L] JUDICIAL MEMBER VICE PRESIDENT DATED, 25 TH SEPTEMBER, 2017. DK ITA NO.5201/DEL/2012 8 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.