Delhi Call Centre Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 5359/DEL/2010

• Counselvise Citation: 535920114 RSA 2010
• Duration Of Justice: 4 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 23-03-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 30-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JUDY JAMES SPL
• Assessee Lawyers: PUNEET CHUGH
• Keywords: Related party transaction; Transfer pricing; International transaction
• Section: 92C; 143(3)

Judgement Text

ITA NO. 5359/ DEL/ 2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I , NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI J.S. REDDY, ACCOUNTANT MEMBER I.T.A. NO. 5 359 /DEL/201 0 A.Y. : 200 6 - 0 7 DELHI CALL CENTRE PRIVATE LIMITED, I - 10, LAJPAT NAGAR - II, NEW DELHI (PAN: AABCD9233C) VS. INCOME TAX OFFICER, WARD 10(1), IP ESTATE, CR BUILDING, NEW DELHI - 110002 (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. RAMIT KATYAL, CA & PUNEET CHUGH, CA DEPARTMENT BY : SH. JUDY JAMES, SPL. COUNSEL DATE OF HEARING : 23 - 3 - 201 5 DATE OF ORDER : 2 5 - 3 - 201 5 ORDER PER H.S. SIDHU : J M TH IS APPEAL BY THE ASSESSEE IS D IRECTED AGAINST THE ASSESSMENT ORDER DATED 19.10.2010 OF THE ASSESSING OFFICER PASSED U/S. 143(3) R.W.S. 144C OF THE I.T. ACT, 1961 P ERTAINING TO ASSESSMENT YEAR 200 6 - 0 7 , ON THE FOLLOWING GROUNDS: - 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING AN ADDITION OF RS. 129,32,857 TO THE RE TURNED INCOME ON ACCOUNT OF ADJUSTMENT TO THE ARM'S LENGTH PRICE OF THE 'INTERNATIONAL TRANSACTIONS' OF CALL CENTRE SERVICES ON THE BASIS OF THE ORDER ITA NO. 5359/ DEL/ 2010 2 PASSED UNDER SECTION 92CA(3) OF THE ACT BY THE TRANSFER PRICING OFFICER (TPO) & AS PER THE DIRECTIONS OF DISPUTE RESOLUTION PANEL (DRP). 2. THAT THE DRP ERRED ON FACTS AND IN LAW IN GIVING THE DIRECTION CONFIRMING THE REJECTION OF THE FOLLOWING COMPARABLE COMPANIES IDENTIFIED BY THE ASSESSEE: S.NO. NAME OF COMPANY OP/OC% REASONS FOR REJECTION 1. SUREV IN INTERNET 3.47% LOW REVENUE. CALL CENTRE SERVICES LTD. ACTIVITIES AMOUNTING TO RS. 91.24 LACS AS AGAINST FILTER OF 1 CRORE. 2. SHREEJAL INFO HUBS LTD. 4.93% FUNCTIONALLY NOT COMPARABLE. IN THE BUSINESS OF INFORMATION VENDING AND RENDERING SERVICES TO CALL CENTRES. 3. OPTIMUS GLOBAL - 28.85% FUNCTIONALLY NOT COMPARABLE. PERSISTENT LOSSES 4. FIRSTSOURCE SOLUTIONS 7.12% REJECTED ON GROUND OF RELATED SOLUTIONS PARTY TRANSACTIONS 5. NIIT SMARTSERVE LTD. - 20.78% RELATED PARTY TRANSACTIONS & PERSISTENT LOSSES ITA NO. 5359/ DEL/ 2010 3 2.1 THAT THE DRP WAS NOT JUSTIFIED IN GIVING DIRECTIONS REJECTING THE OBJECTIONS AND EVIDENCE FURNISHED BY THE APPELLANT COMPANY WITHOUT PASSING A SPEAKING ORDER. 2.2 THAT THE TPO& DRP ERRED ON FACTS AND IN LAW IN REJECTING SUREVIN INTERNET SERVICES LIMITED AS A COMPARABLE COMPANY HOLDING THAT ITS TURNOVER FROM CALL CENTRE ACTIVITIES ARE LESS THAN RS.1 CRORE. 2.2.1THAT THE TPO& DRP ERRED ON FACTS AND IN LAW IN REJECTING SUREVIN INTERNET SERVICES LIMITED AS A COMPA RABLE COMPANY HOLDING THAT IT HAS ACCUMULATED LOSSES TO THE EXTENT OF RS.3.92 MILLION AS AGAINST THE SHARE CAPITAL OF RS.2.88 MILLION AND IGNORING THE RESERVES AND SURPLUS OF THE COMPANY. 2.3 THAT THE TPO & DRP ERRED ON FACTS AND IN LAW IN REJECTING SHREE JAL INFO HUBS LIMITED ON THE GROUND THAT IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. 2.4THAT THE TPO & DRP ERRED ON FACTS AND IN LAW IN REJECTING OPTIMUS OUTSOURCING COMPANY LIMITED HOLDING THAT IT IS NOT FUNCTIONALLY COMPARABLE AND THAT IT IS INCURRING PERSISTENT LOSSES. 2.4.1 THAT THE TPO & DRP OUGHT TO HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT THAT THE GROUNDS ON WHICH OPTIMUS OUTSOURCING COMPANY LIMITED HAS BEEN REJECTED THEN ALLSEC TECHNOLOGIES LIMITED AN ACCEPTED COMPANY ALSO OUGHT TO HAVE BE EN REJECTED. ITA NO. 5359/ DEL/ 2010 4 2.5 WHETHER MERELY BECAUSE A COMPANY HAS INCURRED LOSS I CAN IT BE EXCLUDED FROM THE COMPARABLES ? 2.6 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE I THE LEARNED TPO & DRP WERE NOT JUSTIFIED IN REJECTING NIIT SMART SERVE & FIRST SO LUTION AS COMPARABLE COMPANIES. 3.THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. TPO & DRP OUGHT TO HAVE INCLUDED B2K CORP. AS A COMPARABLE COMPANY FOR BENCHMARKING THE ARM'S LENGTH PRICE. 4. THAT THE DRP FAILED TO CONSIDER THE FRESH TRANSFER PRICING STUDY SUBMITTED BY THE APPELLANT COMPANY. 5. THAT THE TPO &DRP ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT UNDERTAKING THE BENCHMARKING ANALYSIS APPLYING TNMM BY CONSIDERING ONLY 2 HIGH PROFIT MARGIN COMPANIES GIVE SKEWED / ABSURD RESULTS AND IS NOT REPRESENTATIVE OF THE INDUSTRY MARGIN. 6. THAT THE TPO/ DRP ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE ASSESSEE WAS A LOW RISK CAPTIVE SERVICE PROVIDER AND APPROPRIATE ADJUSTMENT IN THE OPERATING PROFIT MARGIN OF THE ASSESSEE OR THE COMPARABLE COMPANIES WAS REQUIRED TO BE MADE ON THIS ACCOUNT IN TERMS OF RULE LOB OF THE INCOME TAX RULES. 7. THAT THE TPO/DRP ERRED ON FACTS AND IN LAW IN NOT CONSIDERING FINANCIALS OF THE ASSOCIATED ENTERPRISES PLACED ON RECORD WHILE ITA NO. 5359/ DEL/ 2010 5 PROPOSING ADJUSTMENT ON ACCOUNT OF DIFFERENCE IN ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. 7.1THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THERE COULD NOT BE ANY ALLEGATION AS TO THE INTERNATIONAL TRANSACTION S NOT BEING AT ARM'S LENGTH CONSIDERING THAT THE ASSOCIATED ENTERPRISES HAVE EARNED MARGINAL PROFIT. 8. THAT THE TPO & DRP ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE INCOME OF THE ASSESSEE IS EXEMPT UNDER SECTION 10A OF THE INCOME TAX ACT AND HENCE, THERE COULD NOT BE ANY MOTIVE FOR THE TRANSFER OF PROFITS OUTSIDE INDIA. 9.THAT THE TPO & DRP ERRED IN LAW IN NOT ALLOWING BENEFIT TO THE EXTENT OF (+/ - )5% IN TERMS OF THE PROVISO TO SECTION 92C (2), WHILE DETERMINING THE ARM'S LENGTH PRICE OF THE 'INTERNATIONAL TRANSACTIONS'. 10.THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN DISALLOWING RS. 30,600/ - ON AMORTIZATION OF PRELIMINARY EXPENSES INCURRED BY THE ASSESSEE ON THE ISSUE OF SHARES, HOLDING THAT THE ASSESSEE IN NOT AN INDUSTRIAL UNDER TAKING AND IS NOT ENTITLED TO THESE EXPENSES UNDER SECTION 35D OF THE ACT. 11.THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN DISALLOWING, UNDER SECTION 35D OF THE ACT, AN EXPENSE OF RS. 4,85,591/ - INCURRED ITA NO. 5359/ DEL/ 2010 6 BY THE ASSESSEE AS PREOPERATIVE EXPENSES , HOLDING THAT THE ASSESSEE COMPANY HAS ALREADY CLAIMED EXPENSES TO THE EXTENT ALLOWABLE, IN EARLIER YEARS. 12. THAT THE ASSESSMENT ORDER FRAMED IS BAD IN LAW. 13. THAT THE LEVY OF INTEREST U/S234B IS EXCESSIVE & WITHOUT AUTHORITY OF LAW. 14. THAT THE A PPELLANT CRAVES FOR LEAVE TO ADD, ALTER, MODIFY ANY OF THE GROUNDS OF APPEAL MENTIONED ABOVE AT THE TIME OF HEARING. 2. THE BRIEF FACTS IN THE CA S E ARE THAT THE RETURN OF INCOME DECLARING NIL INCOME AFTER CLAIMING DEDUCTION OF RS. 1,25,45,750/ - U/S. 10A WAS FILED ON 27.11.2007 AND THE SAME WAS PROCESSED U/S. 143(1). THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICE U/S. 143(2) WAS SENT TO THE ASSESSEE COMPANY. THE TPO HAS PASSED THE ORDER U/S. 92CA(3) DATED 29.7.2009 WHEREIN HE HAD MADE AN ADJUSTMENT OF RS. 1,94,59,762/ - IN THE ARMS LENGTH PRICE OF THE ASSESSEE COMPANY. THUS, THE AO MADE THE ADDITION OF RS. 1,94,59,762/ - IN THE INCOME OF THE ASSESSE E COMPANY BEING DIFFERENCE BETWEEN THE ARM S LENGTH PRICE VIDE HIS DRAFT ASSESSMENT ORDER DATED 27.11.2009. AGGRIEVED WITH THE AFORESAID ORDER OF THE AO, ASSESSEE FILED APPEAL BEFORE THE DRP AND THE DRP VIDE ITS ORDER DATED 3 0.8.2010 PASSED U/S. 144C O F THE I.T. ACT HAS UPHELD THE DRAFT ASSESSMENT ORDER. THEREAFTER THE AO ASSESSED THE INCOME OF ITA NO. 5359/ DEL/ 2010 7 THE ASSESSEE AT RS. 1,29,32,857/ - VIDE HIS ORDER DATED 19.10.2010 PASSED U/S. 143(3) OF THE I.T. ACT, 1961. 3. AGGRIEVED WITH THE ASSESSMENT ORDER, ASSESS EE IS IN APPEAL BEFORE THE TRIBUNAL. 4. LD. COUNSEL OF THE ASSESSEE HAS REITERATED THE CONTENTIONS RAISED IN THE GROUNDS OF APPEAL AND STATED THAT THE AO WAS NOT JUSTIFIED IN MAKING AN ADDITION OF RS. 129,32,857/ - TO THE RETURNED INCOME ON ACCOUNT OF T RANSFER PRICING ADJUSTMENT TO THE INTERNATIONAL TRANSACTIONS OF CALL CENTRE SERVICES ON THE BASIS OF THE ORDER PASSED U/S. 92CA(3) OF THE ACT BY THE TPO AS CONFIRMED BY THE DIRECTIONS OF THE DRP . HE TOOK US THROUGH THE ORDER OF THE DRP AND SUBMITTED T HAT THIS ORDER IS CRYPTIC AND NON SPEAKING. HE POINTED OUT THAT NONE OF THE CONTENTIONS RAISED IN THE APPEAL WERE ADDRESSED BY THE DRP. HENCE, HE SUBMITTED THAT THE ASSESSMENT ORDER FRAMED IS BAD IN LAW. 5. ON THE OTHER HAND LD. DR RELIED UPON THE OR DER OF THE ASSESSING OFFICER AS WELL AS THE ORDER OF THE DRP AND REQUESTED TO UPHOLD THE SAME. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. AT THE THRESHOLD , WE FIND THAT THE LD. DRP VIDE ITS ORDER DATED 30.8.2010 PASSED U/S. 144C OF TH E I.T. ACT HAS ADJUDICATED THE ISSUE AS UNDER: - ITA NO. 5359/ DEL/ 2010 8 THE OBJECTIONS RELATES TO ADDITION OF RS. 1,94,59,762/ - ON ACCOUNT OF ADJUSTMENT OF THE ARM S LENGTH PRICES OF INTERNATIONAL TRANSACTIONS COMPUTED BY THE TPO IN HIS DRAFT ASSESSMENT ORDER. THE ADDITION HA S RESULTED ON ACCOUNT OF WORKING OF OP/OC PERCENTAGE ON THE BASIS OF COMPARABLES. ORIGINALLY THE ASSESSEE HAD TAKEN 22 COMPARABLE COMPANIES IN THE TP DOCUMENTS AND HAD SUBSEQUENTLY REDUCED IT TO 8 COMPARABLES ONLY. THE TPO HAS REJECTED 5 OF THE PROPOS ED COMPARABLES AND WORKED OUT THE OP/OC PERCENTAGE ON THE BASIS OF 3 COMPARABLES ARRIVING AT THE AVERAGE OF 28.35% AND APPLYING IT TO DETERMINE THE ADJUSTMENT FIGURE OF RS. 1,94,59,762/ - . AS REGARDS REJECTION OF COMPARABLES PROPOSED BY THE ASSESSEE THE A O HAS GIVEN COGENT AND DETAILED REASONS FOR THE SAME. WE HAVE GONE THROUGH THE OBJECTIONS MADE BY THE ASSESSEE AND AFTER CONSIDERING THE ARGUMENTS PUT UP BY THE REPRESENTATIVES AND ALSO THE DRAFT ASSESSMENT ORDER AND IN VIEW OF THE EVIDENCE PRODUCED BY TH E ASSESSEE S REPRESENTATIVE, WE FIND THAT ONE OF THE COMPARABLES I.E. MAPEL E SOLUTIONS NEEDS TO BE TAKEN OUT FROM THE LIST OF COMPARABLES PROPOSED BY THE TPO. THE TPO IS DIRECTED TO WORK OUT THE ADJUSTMENT ACCORDINGLY. AS REGARDS THE OTHER QUERIES OF TH E ASSESSEE THE SAME HAVE BEEN ADEQUATELY ANSWERED BY THE TPO IN HIS DRAFT ORDER AND WE DO NOT FIND ANY REASON TO INTERFERENCE WITH REST OF THE DRAFT ORDER. ITA NO. 5359/ DEL/ 2010 9 7 . FROM THE ABOVE FINDING OF THE LD. DRP, WE FIND THAT THE LD. DRP HAS NOT ADDRESSED ANY OF THE CONTENTIONS RAISED BY THE ASSESSEE AND HAS NOT GIVEN REASONS OR FINDINGS ON THE REJECTION OF THE COMPARABLES CONSIDERED BY THE ASSESSEE . T HE LD. DRP HAS SIMPLY MENTIONED THAT THE AO HAS GIVEN COGENT AND DETAILED REASONS FOR THE SA ME . IN OUR CONSIDERED OPINION, THE FINDING GIVEN BY THE LD. DRP IS NOT A SPEAKING ONE AND IS NOT SUSTAINABLE IN THE EYES OF LAW. THEREFORE, IN THE INTEREST OF JUSTICE, WE CANCEL THE ASSESSMENT ORDER DATED 19.10.2010 PASSED U/S. 143(3) R.W.S. 144C OF T HE I.T. ACT AND REMIT BACK ALL THE ISSUES TO THE FILE OF THE LD. DRP WITH THE DIRECTIONS TO PROPERLY CONSIDER AND EXAMINE THE ISSUES IN DETAIL AND GIVE A FINDING ON EACH OF THE CONTENTION RAISED BY THE ASSESSEE IN ITS APPEAL AND PASS A SPEAKING ORDER THE REON. 8 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE O PEN C OURT ON 2 5 / 3 /20 1 5 . SD / - S D / - [ J.S. REDDY ] [ H.S. SIDHU ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 2 5 / 3 /201 5 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES ITA NO. 5359/ DEL/ 2010 10