Webex Communications India Private Limited, Bangalore V. DCIT, Bangalore

ITA 545/BANG/2015

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 9407 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 18-03-2019
• Assessment Year: 2010-2011
• Appeal Filed On: 01-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction

Judgement Text

IT(TP)A.545/BANG/2015 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'B', BENGALURU BEFORE SHRI. A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI. LALIET KUMAR, JUDICIAL MEMBER I.T.(TP)A.NO.545/BANG/2015 (ASSESSMENT YEAR : 2010-11) WEBEX COMMUNICATIONS INDIA P. LTD NO.2, NORTH PARK ROAD, KUMARA PARK EAST, BENGALURU 560001 .. APPELLANT PAN : AABCC0256A V. JOINT COMMISSIONER OF INCOME-TAX, CIRCLE 12(5), BENGALURU .. RESPONDENT ASSESSEE BY : SHRI. RAJAN VORA, CA REVENUE BY : SMT. NEERA MALHOTRA, CIT-DR HEARD ON : 27.03.2019 PRONOUNCED ON : 05.04.2019 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE RESPECTIVE ORDERS OF THE ASSESSING OFFICERS PASSED U/S.143(3) R.W.S.144C(13) OF THE ACT, IN PURSUANCE TO THE DIRECTIONS OF THE D RP. IT(TP)A.545/BANG/2015 PAGE - 2 02. IN THIS APPEAL THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS UNDER : IT(TP)A.545/BANG/2015 PAGE - 3 IT(TP)A.545/BANG/2015 PAGE - 4 FOLLOWING MODIFIED GROUNDS OF APPEAL ARE RAISED BY THE ASSESSEE : IT(TP)A.545/BANG/2015 PAGE - 5 03. IN THIS APPEAL, OUR ATTENTION WAS DRAWN BY AR TO PARA 6.5 TO 6.9 OF THE DRP ORDER, WHICH IS TO THE FOLLOWING EFFECT : 6.5 WE HAVE CONSIDERED THE ASSESSEE'S OBJECTIONS CAREFULLY. THE TPO HAS REJECTED THE SELECTION OF CO MPARABLE CASES CHOSEN BY THE ASSESSESE FOR THE DETAILED REAS ONS GIVEN IN THE TP ORDER. THE ASSESSEE IS NOT AGITATED OVER THE CONSIDERATION OF TURNOVER AS THE BENCHMARK. HOWEVER , THE ASSESSEE OBJECTS TO THE CONSIDERATION OF THE FOLLOW ING 6 CASES ON THE GROUND THAT THEY ARE FUNCTIONALLY DIFFERENT FROM THE ASSESSEE: 6.6 THE OBJECTIONS OF THE ASSESSEE FOR EXCLUDING TH E CASES GIVEN IN THE FIRST TABLE AND FOR INCLUDING THE CASE S IN THE SECOND TABLE HAVE MERIT IN VIEW OF THE DIRECTIONS O F THE HON'BLE ITAT, BANGALORE IN THE FOLLOWING CASES: 6.7 THE TPO IS DIRECTED TO EXCLUDE THESE CASES AS T HE COMPARABLES TAKEN AS MENTIONED ABOVE ARE FUNCTIONAL LY QUITE DIFFERENT FROM THE ASSESSEE'S FUNCTIONS. 6.8 ON A CAREFUL CONSIDERATION, WE FIND THAT THE C OMPARABLE CASES TO BE INCLUDED ARE GIVEN IN THE TABLE BELOW. THIS IS ALSO BASED ON THE DECISION OF THE HON'BLE ITAT, BANGALOR E IN THE 4 CASES CITED ABOVE. THE TPO'S ACTION IS, OTHERWISE, FULLY JUSTIFIED. THE LIST OF CASES TO BE INCLUDED IN THIS REGARD IS GIVEN BELOW: IT(TP)A.545/BANG/2015 PAGE - 6 6.9 ON A CAREFUL EXAMINATION OF THE OBJECTIONS OF T HE ASSESSEE IN THE LIGHT OF THE SUBMISSIONS, WE FIND THAT THEY ARE WELL- FOUNDED. WE, THEREFORE, DIRECT THE TPO TO INCLUDE T HE 8 CASES MENTIONED ABOVE AS COMPARABLE AND RECALCULATE THE CORRECT TRANSFER PRICING ADJUSTMENT TO BE MADE. IT WAS SUBMITTED THAT THIS APPEAL IS ALSO REQUIRED TO BE SENT BACK TO THE FILE OF THE DRP AS THE ORDER IN THE PRESENT CAS E IS NOT ONLY UNREASONED, BUT ALSO THERE IS TOTAL NON-APPLICATI ON OF MIND WHICH IS CLEAR FROM PARA 6.5 WHERE THE DRP THOUGH HAD MEN TIONED THAT THESE OBJECTIONS WERE RAISED AGAINST 6 COMPARABLES BUT IN THE TABLE ONLY FOUR COMPARABLES WERE MENTIONED. 04. THE LD. AR HAD SUBMITTED THAT THE ISSUE OF SOF TWARE DEVELOPMENT SERVICES AS WELL AS ITES RAISED IN THE ABOVE TWO APPEALS ARE NOW FAIRLY COVERED IN FAVOUR OF THE ASS ESSEE BY VARIOUS PRONOUNCEMENTS. THEREFORE WHILE REMANDING THE MATT ERS TO THE FILE OF DRP, THE BINDING DECISIONS SHOULD ALSO BE DIRECT ED TO BE CONSIDERED BY THE DRP. 05. THE LD. DR RELIES ON THE ORDERS OF THE LOWER AU THORITIES. 06. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. PARA 13 TO 13.3 OF THE DRP FOR AY 200 8-2009 READS AS UNDER : IT(TP)A.545/BANG/2015 PAGE - 7 13) GROUND OF OBJECTION 9 : THE LEARNED TPO AND THE LEARNED AO HAVE ERRED, IN L AW AND IN FACTS, BY ACCEPTING / REJECTING CERTAIN COMPANIES B ASED ON UNREASONABLE COMPARABILITY CRITERIA. 13.1 THE LEARNED TPO HAS EXCLUDED THE FOLLOWING COM PANIES AS COMPARABLES FOR SWD DESPITE THE FACT THAT THE SA ID COMPANIES SATISFY THE COMPARABILITY CRITERIA. COMPARABLES RETAINED BY THE TPO WHICH ACCORDING TO THE ASSESSEE ARE TO BE REJECTED : 13.2 WE CONSIDERED THE GROUNDS OF OBJECTION RAISED BY THE ASSESSEE WITH REGARD TO THE FOLLOWING COMPARABLES A S TO WHY THE SAID COMPARABLES ARE ACCEPTABLE TO THE TPO AND ACCO RDINGLY RETAINED AS DISCUSSED BELOW : IT(TP)A.545/BANG/2015 PAGE - 8 IT(TP)A.545/BANG/2015 PAGE - 9 NOTE 1 : AN ANALYSIS OF MARGINS VIS-A-VIS REVENUES OF INFOSY S TECHNOLOGIES LTD. FROM THE YEAR 2000 TILL 2010 ON THE BASIS OF D ATA EXTRACTED FROM THE CAPITALINE DATABASE HAS BEEN MADE IN THIS REGARD. THE DETAILS ARE TABULATED BELOW : AS CAN BE SEEN FROM THE ABOVE, THOUGH THE TURNOVER OF THE COMPANY HAS INCREASED ABOUT 24 TIMES FROM THE YEAR 2000 TO 2010 THE OPERATING MARGINS HAVE NOT RISEN IN DIRECT PROPORTI ON TO THE RISE IN THE TURNOVER. THE MARGINS HAVE BEEN HOVERING MOSTLY AROUND 40% TO 45%. ONLY MEANING THEREBY THAT THE OPERATING MARGINS ARE NOT AFFECTED BY THE SCALE OF THE COMPANY. HENCE, TH E ARGUMENT THAT THE COMPANIES HAVING LARGE SCALE OF OPERATIONS HAVE BETTER MARGINS IS WITHOUT ANY BASIS. IT MAY ALSO BE POINTED OUT THAT INFOSYS TECHNOLOGIE S WAS PICKED UP AS A COMPARABLE IN THE AY 2006-07 ALSO BY THE DEPAR TMENT WHILE ANALYSING THE INTERNATIONAL TRANSACTIONS PERTAINING TO SOFTWARE DEVELOPMENT SERVICES IN A LARGE NUMBER OF CASES IN ONE SUCH CASE OF ALTAIR ENQINEERING INDIA PVT LTD., BANGALORE, THE HON'BLE DRP CONFIRMED THE FINDING OF THE TPO THOUGH THE TURNOVER OF THE SAID ASSESSEE WAS ONLY RS.802 CRORES. THE AV ERAGE PLI OF THE COMPARABLES, WHICH INCLUDED INFOSYS TECHNOLOGIES LT D. AS WORKED OUT BY THE TPO WAS 20 68% ON COST. THE SAID APPELLANT WENT IN APPEAL BEFORE THE HON'BLE ITAT AND THE B B ENCH OF THE IT(TP)A.545/BANG/2015 PAGE - 10 HON'BLE ITAT BANGALORE, UPHELD THE TPOS PU TO THE E XTENT OF 20% AND GRANTED RELIEF ONLY AT 0.68% ON GROUNDS NOT RELATED TO THE COMPARABLES TAKEN BY THE TPO. IN THE CASE OF THE AS SESSEE ALSO FOR THE AY 2006-07 , INFOSYS TECHNOLOGIES LTD., WAS CON SIDERED AS A ON RECORD HOW SUCH FUNCTIONAL DIFFERENCE AND RISK HAS INFLUENCED THE RESULT OF THE COMPARABLE BY THE TPO. THUS, THE AFORESAID DECISION OF THE HON'BLE ITAT,BANGALORE, M AY BE SAID TO BE APPLICABLE TO THE ASSESSEE ALSO IN A RECENT CASE OF SYNIANTEC SOFTWARE SOLUTIONS PV T.LTD. VS. ACIT , THE HON'BLE ITAT,MUMBAI, (2011TU60LTATMU M- TP) CONSIDERED THE APPLICATION OF TURNOVER FILTER A ND RISK ADJUSTMENT AND HELD THAT UNLESS AND UNTIL IT IS BRO UGHT ON RECORD THAT THE TURNOVER OF SUCH COMPARABLES HAD UNDUE INF LUENCE ON THE MARGINS,IT IS NOT THE GENERAL RULE TO EXCLUDE THE S AME THE HON'BLE ITAT ALSO HELD THAT THE DIFFERENCE IN FUNCT ION AND RISK LEVEL IS NOT ACCEPTABLE BECAUSE THE ASSESSEE H AS NOT BROUGHT COMPARABLES WITH QUANTIFIED DATA. IT MAY ALSO BE SUBMITTED THAT IN THE CASE OF ST MIC RO ELECTRONIC S(2011-TLI-63-JTATDEL-TP) THE HON'BLE [T AT HAS UPHELD THE RETENTION OF INFOSYS TECHNOLOGIES LT D., AS A COMPARABLE. NOTE-2: THE TAXPAYER'S ARGUMENT THAT PROFITS DERIVED BY INF OSYS ARE PREDOMINANTLY PERTAINING TO BRAND IS WITHOUT ANY BA SIS. FIRSTLY, THE TAXPAYER HAS NOT GIVEN ANY COGENT EVIDENCE OR D ATA TO SUPPORT THE PRESUMPTION THAT THE MARGINS EARNED BY INFOSYS OR ANY OTHER COMPANY IN THE SOFTWARE INDUSTRY ARE AFFECTED BY THE SO CALLED BRAND VALUE. SECOND, THE DIFFERENCE IF ANY, BETWEEN THE TAXPAYER AND THE COMPARABLE COMPANY ON ACCOUNT OF D IFFERENCES IN MARKET RISK, CREDIT RISK ETC., ARE DEALT WITH SEPAR ATELY IN THE PART OF THE ORDER DEALING WITH RISK ADJUSTMENT. ULTIMATE LY THE PROFITS EARNED BY ANY COMPANY INCLUDING INFOSYS ARE DEPENDE NT UPON THE OVERALL MARKET CONDITIONS AND THE SERVICES REND ERED.. THUS BRAND NAME MAY GET HIGHER TURNOVER BUT IT DOES NOT NECESSARILY MEAN THAT IT WOULD GENERATE HI G HER MARGIN. 13.3 ACCORDINGLY THE GROUND OF OBJECTION WITH REGAR D TO 15 COMPARABLES AS ACCEPTED BY THE TPO ARE UPHELD AND T HE ARGUMENT OF THE ASSESSEE IS REJECTED. IT(TP)A.545/BANG/2015 PAGE - 11 07. FROM THE PERUSAL OF THE ABOVE SAID ORDER OF THE DRP FOR THE AY 2008-09, IT IS CLEAR THAT THE DRP HAD PASSED A C RYPTIC ORDER AND HAD NOT SPECIFICALLY DECIDED THE GROUND RAISED BY T HE ASSESSEE WITH RESPECT TO EACH OF THE COMPARABLES AND HAD ONLY DEC IDED THE FUNCTIONAL COMPARABILITY OF INFOSYS. WE MAY ALSO P OINT OUT THAT THE DRP IN PARA 6.5 HAS MENTIONED THAT THE ASSESSEE HAS OBJECTED TO SIX COMPARABLES. HOWEVER THE DRP HAD ONLY MENTIONED FO UR COMPARABLES IN THE TABLE BELOW PARA 6.5, WHEREAS TH E OBJECTION WAS RAISED IN RESPECT OF SIX COMPARABLES. THIS ALSO SH OWS THE TOTAL NON- APPLICATION OF MIND BY THE DRP. 08. IN VIEW OF THE ABOVE THE ORDER PASSED BY THE DR P IS CRYPTIC, STEREOTYPED AND IS WITHOUT ANY REASONING. IN FACT THE DRP HAS FOLLOWED THE REASONING GIVEN BY THE TPO WITHOUT ANY DISCRETIONS OF THE OBJECTIONS OF THE ASSESSEE IN RESPECT OF BOTH T HE SEGMENTS. WE EXPECT THE DRP TO GIVE A REASONED AND COGENT FINDIN G WHILE DEALING WITH THE CONTENTION OF THE ASSESSEE WITH RESPECT TO EXCLUSION / INCLUSION OF THE COMPARABLES. AS THE ORDER WAS SIL ENT ON MATERIAL ASPECTS, THEREFORE WE REMAND THE WHOLE OF THE TP IS SUE PERTAINING TO INCLUSION / EXCLUSION TO THE FILE OF THE DRP WITH A DIRECTION TO PASS A REASONED AND SPEAKING ORDER. NEEDLESS TO SAY WHILE DOING SO THE DRP SHALL ALSO FOLLOW THE PROCEDURE AS PROVIDED UND ER THE ACT AND RULES IN ADJUDICATING THE GRIEVANCE OF THE ASSESSEE . IT(TP)A.545/BANG/2015 PAGE - 12 09. IN THE RESULT, APPEALS OF THE ASSESSEE IS ALLOW ED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH DAY OF APRIL, 2019. SD/- SD/- (A. K. GARODIA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBE R BENGALURU DATED : 05.04.2019 MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.