ACIT, Bangalore V. M/s. Sykes Enterprises (India) Pvt. Ltd., Bangalore

ITA 548/BANG/2008

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5434 (ITAT-BANGALORE)
• Duration Of Justice: 8 year(s) 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 18-04-2017
• Assessment Year: 2004-2005
• Appeal Filed On: 29-04-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Unabsorbed depreciation
• Section: 234B; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A, BANGALORE BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER IT(TP)A NO.548 (BANG) 2008 (ASSESSMENT YEAR : 2004-05) THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-12(3), BANGALORE APPELLANT VS M/S SYKES ENTERPRISES (IND.) PVT. LTD. NO.802, 2 ND FLOOR, 14 TH MAIN, 7 TH CROSS, MICO LAYOUT, BTM 2 ND STAGE, BANGALORE PAN NO.AAGCS2081J RESPONDENT AND IT(TP)A NO.569(BANG)/2008 (ASSESSMENT YEAR : 2004-05) (BY ASSESSEE) REVENUE BY : SHRI G.R.REDDY, CIT_DR-I ASSESSEE BY : SHRI G.C.SRIVASTAVA, ADVOCATE DATE OF HEARING : 18-04-2017 DATE OF PRONOUNCEMENT : 28-04-2017 O R D E R PER SHRI A.K.GARODIA, AM THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE AND THESE ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-IV, BANGALORE DATED 28-02-2008 FOR ASSESSMENT YEAR 2004-05. 2. THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL ARE AS UNDER; 1. THE ORDER OF THE LD. CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN REDUCING THE ADJUSTMENT TO ALP FROM RS.7,55,05,803/- TO RS.4,91,14,091/- THEREBY GRANTING A RELIEF OF RS.2,63,91,712/- 3. THE CIT(A) HAS ERRED IN ACCEPTING M/S TRANSWORKS INFORMATION SERVICE LTD., AS COMPARABLE WHICH HAS BEEN REJECTED BY THE TPO ON THE GROUND THAT IT WAS MAKING CONSISTENT LOSSES, WHICH QUALITATIVE CRITERIA/FILTER WAS APPLIED BY TH E TAX PAYER HIMSELF. 4. THE CIT(A) HAS ERRED IN REJECTING THE TPOS ARGUMENT THAT CONSISTENT LOSS MAKING COMPANIES ARE TO BE EXCLUDED AS COMPARABLE IN AN ENVIRONMENT WHERE THERE IS NO DOWNWARD CYCLE IN THE SOFTWARE/ITES SECTOR. 5. THE CIT(A) HAS ERRED IN REJECTING THE PERSISTEN T LOSS MAKING CRITERIA WHICH WAS APPLIED BY THE TAX PAYER IN THE ORIGINAL T.P DOCUMENTATION AND ACCEPTED Y THE TPO. SINCE THE TPO DID NOT ACCEPT THE ASSESSEE COMPANYS FRESH CLAIM FOR A NEW SET OF COMPARABLE CASES SUBMITTED (TO WHICH THIS FILTER/CRITERIA WAS NOT APPLIED) DURING THE COURSE OF T.P PROCEEDINGS, THE SAME SHOULD NOT HAVE BEEN CONSIDERED Y THE CIT(A). 6. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, I IS PRAYED THAT THE ORDER OF THE AO MAY BE RESTORED. 7. THE APPELLANT CRAVES LEAVE TO ADD OR LATER TO AMEND OR TO DELETE ANY OF THE GROUNDS THAT MAY BE URGED ON OR BEFORE THE HEARING OF THE APPEAL. 3. THE GROUNDS RAISED BY THE ASSESSEE IN ITS APPEA L ARE AS UNDER; T H E G R O UND S H E R E INAFT E R TAK E N BY THE APP E LLANT AR E W ITH O UT P R E JU D I CE TO ON E A N O TH E R . 1. THAT T HE ORDER PASSED BY TH E LEARNED CIT(APP EA LS), TO THE E X T ENT PREJUDICIAL TO THE APP E LLANT , I S BAD IN LA W AND LIAB L E TO BE QUASHED . 2 THAT ON THE FATS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN UPHOLDING THE LD. ASSESSING OFFICERS ACTION IN INVOKING THE PROVISIO NS OF SEC.92CA(1) OF THE INCOME TAX ACT, 1961 (THE ACT ' ) AND REFERRING THE COMPUTAT I ON OF THE ARM ' S LEN G TH PRICE T O THE L E ARN E D TRANSFER PRICING OFFICER . 3. THA T T HE LEARNED CIT (APPEALS) ERRED IN NOT HOLDING THAT IN ABSENCE OF A CH A RGING PR OV ISION I N TH E ACT , ADDI T ION TO CHARGEABLE INCOME CANNOT BE MADE MERELY THROUGH A TRANSFER PRICING ADJU S TM E NT (D I FFERENCE BETWEEN T R ANSACTION PRICE OF THE APPELLANT AND ALL E GED ARM'S LENGTH PRICE DETERMINED B Y TH E LEARNED ASSESSING OFFICER / TRANSFER PRICING OFFICER) . 4. THA T TH E L EAR N ED CIT (APPEALS) ERRED IN NOT QUASHING THE ADJUSTM E NT TO TH E TR A NSFER PRIC E O F TH E APPELLAN T , AS MADE B Y TH E L E ARNED ASSESSING OFFICER , WITHOUT APPLICATION OF MIND , B Y PUREL Y RE L YI NG ON THE ORDER OF T HE LEARNED TRANSFER PRICING OFFICER . 5. THAT ON TH E FACTS AND IN THE CIRCUMSTANCES OF THE CASE, T HE L E ARNED CIT ( A PP E ALS) E RR E D IN HOLDING T HA T TH E MARK-UP ON TOT A L COST [OPERATING PROFIT TO TOTAL COST RATIO OF COMPAR A BLES CONSIDER I NG TRANSACTIONAL NET MARGIN METHOD (TNMM) BEING THE APPROPRIATE METHOD] IN TH E CAS E OF THE APPEL L ANT , FOR THE PURPOSE O F D E TERMINING ARM ' S LENGTH PRICE OF INT E RNATIONAL TRANSACTION S IN IT ENA BL ED SERVICES (ITES) BUSINESS , SHOULD BE 25 . 18 % AS AGAINS T 10 % DETERMINED BY THE APPELLANT . 6. THA T ON TH E FACTS AND IN THE CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT ( A PP E ALS) E RRED IN UPHOLDING T HE ADJUS T ME N T T O T HE ARM'S LENGTH PRICE UNDER SECTION 92CA OF TH E ACT TO TH E EX TENT OF RS . 49 , 114,091 . 7. THAT THE LD. CIT(A) ERRED IN NOT HOLDING THAT COMPARABLES HAVE TO BE SELECTED ON THE BASIS OF D ATA AVAILABLE AT THE TIME OF .PREPARATION OF THE TRANSF ER PRICING DOCUMENTATION AND NOT AS OF ANY SUBSEQUENT DATE. 8. THAT EVEN ASSUMING BUT NOT ADMITTING DATA SUBSEQUENTLY, AVAILABLE CAN BE USED SUCH DATA IS TO BE RESTRICTED TO COMPARABLES ORIGINALLY SELECTED BY THE APPELLANT. 9.THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CITA) ERRED (WHILE DETERMINING THE M ARK- UP ON TOTAL COST OF COMPARABLE UNDER TNMM IN NOT INCLUDING THE DATA OF CERTAIN COMPARABLE COMPANIES IN THE LIST OF COMPARABLES SELECTED/CONSIDERED BY THE APPELLANT IN SUPPORT OF THE ARMS LENGTH NATURE OF ITS TRANSFER PRICE. 10. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) ERRED IN INCLUDING THE FOLLOWI NG COMPANIES AS COMPARABLES; A. VISHAL INFORMATION TECHNOLOGIES LTD. B. FORTUNE INFOTECH LTD. C. WIPRO BPO SOLUTIONS LTD. 11. THAT THE LD. CIT(A) ERRED IN UPHOLDING THE ACTI ON OF THE LD. ASSESSING OFFICER/TPO IN MAKING A PRESUMPTIVE ADJUSTMENT FOR NORMALIZATION OF EXPENSE S FOR A CERTAIN UNCONTROLLED COMPARABLE COMPANY. 12. THAT THE LD. CIT(A) ERRED IN HOLDING THAT IT WA S MANDATORY FOR THE LD. ASSESSING OFFICER/TPO TO USE ONLY THE DATA OF COMPARABLE COMPANIES FOR THE SAME FINANCIAL YEAR AS UNDER APPEAL, WHILE DETERMINING T HE MARK-UP ON TOTAL COST OF COMPARABLES UNDER TNMM. 13. THAT THE LD. CIT(A) ERRED IN UPHOLDING THE ACTI ON OF THE LD. ASSESSING OFFICER IN NOT CONSIDERING THE WORKING CAPITAL POSITION OF THE APPELLANT, WHILE DETERMINING THE ADJUSTED MARK-UP ON TOTAL COST OF COMPARABLE COMPANIES. 14. THAT THE LD. CIT(A) ERRED IN NOT CONSIDERING TH E RISK FREE NATURE OF THE APPELLANTS BUSINESS WHILE DETERMINING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF THE ITES BUSINESS O TH E APPELLANT. 15. THAT THE LD. CIT(A) ERRED IN NOT ALLOWING THE B ENEFIT OF +/- 5% AS PROVIDED IN PROVISO TO SECTION 92C(2) OF THE ACT, WHILE RE-COMPUTING THE ARMS LENGTH PRICE. 16. THAT THE LD. CIT(A) ERRED IN NOT SPECIFICALLY DIRECTING THE LD. AO TO SET OFF THE UNABSORBED DEPRECIATION BROUGHT FORWARD FROM EARLIER YEARS. 17. THAT THE LD. CIT(A) ERRED IN UPHOLDING THE CHAR GING OF INTEREST UNDER SECTION 234B AND 234D OF THE ACT. 18. THAT THE APPELLANT CRAVES LEAVE TO ADD TO AND/O R ALTER, AMEND, RESCIND OR MODIFY/THE GROUNDS TAKEN HEREIN ABOVE BEFORE OR AT THE TIME OF HEARING OF TH IS APPEAL. 4. IN THE ASSESSEES APPEAL, VARIOUS GROUNDS WERE RAISED BUT IT WAS SUBMITTED BY THE LD. AR OF THE ASSESSEE THAT HE IS PRESSING ONLY GROUND NO.10 & 11 AND THE ADDITIONAL GROUNDS AND TH EREFORE, WE RE- PRODUCE GROUND NO. 10 & 11 AND ADDITIONAL GROUNDS A ND THE REMAINING GROUNDS OF THE ASSESSEE ARE REJECTED AS N OT PRESSED. 10. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN INCLUDING THE FOL LOWING COMPANIES AS COMPARABLES; A. VISHAL INFORMATION TECHNOLOGIES LTD. B. FORTUNE INFOTECH LTD. C. WIPRO BPO SOLUTIONS LTD. 11. THAT THE LD. CIT(A) ERRED IN UPHOLDING THE ACTI ON OF THE LD. ASSESSING OFFICER/TPO IN MAKING A PRESUMPTIVE ADJUSTMENT FOR NORMALIZATION OF EXPENSE S FOR A CERTAIN UNCONTROLLED COMPARABLE COMPANY. ADDITIONAL GROUNDS: 1. THE LD. AO/TPO ERRED IN TRICOM INDIA LTD AND ULTRAMARINE & PIGMENT LTD THAT FAIL THE TEST OF COMPARABILITY, AS COMPARABLE TO THE APPELLANT. 5. IN COURSE OF HEARING BEFORE US, THE LD. AR OF THE A SSESSEE SUBMITTED A CHART ALSO AND REQUESTED FOR EXCLUSION OF 5 COMPARABLE CO AS UNDER; 1) TRICOM INDIA LTD. 2) FORTUNE INFOTECH LTD 3) VISHAL INFORMATION TECHNOLOGIES LTD. 4) WIPRO BPO SOLUTIONS LTD. 5)ULTRAMINE & PIGMENTS LTD. IN SUPPORT OF ASSESSEES CLAIM FOR EXCLUSION OF TH ESE 5 COMPANIES, RELIANCE WAS PLACED ON THE TRIBUNAL ORDER RENDERED IN THE CASE OF 24 X 7 CUSTOMER.COM PVT. LTD. IN ITA NO.227(BANG0/2010 DAT ED 09-11-2012, COPY AVAILABLE ON PAGE-433 TO 465 OF THE PAPER BOOK . AS AGAINST THIS, IT WAS SUBMITTED BY THE LD. DR OF THE REVENUE THAT BEF ORE THE TPO, NO OBJECTION WAS RAISED REGARDING EXCLUSION OF VISHAL INFORMATION TECHNOLOGIES LTD. AND IN THIS REGARD, OUR ATTENTION WAS DRAWN TO PAGE- 211 OF THE PAPER BOOK BEING PART OF SUBMISSIONS MAD E BEFORE THE TPO. IT WAS POINTED OUT THAT THIS WAS THE ONLY SUBMISSIO N BEFORE THE TPO THAT THESE THREE COMPANIES I.E. A) M/S WIPRO BPO LTD., B ) M/S VISHAL INFORMATION TECHNOLOGIES LTD AND M/S FORTUNE INFOTE CH LTD. COULD NOT BE CONSIDERED BY THE ASSESSSEE IN TP STUDY BECAUSE THE DATA WAS NOT AVAILABLE IN THE PUBLIC DOMAIN IN RESPECT OF THESE COMPANIES AT THE TIME OF PREPARATION OF DOCUMENTATION/ESTIMATE OF THE TRA NSFER PRICING FOR UNDERTAKING THE INTERNATIONAL TRANSACTIONS WITH AE AND THEREFORE, COULD NOT BE CONSIDERED AS COMPARABLE COMPANIES AT THAT P OINT OF TIME. HE SUBMITTED THAT UNDER THESE FACTS, THE ISSUE REGARDI NG EXCLUSION OF THESE COMPANIES MAY BE RESTORED BACK TO THE FILE OF AO/TP O FOR FRESH DECISION AFTER CONSIDERING VARIOUS ARGUMENTS OF THE LD. AR O F THE ASSESSEE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN VIEW OF THESE FACTS THAT OUT OF 5 COMPANIES FOR WHICH THE ASSESEE IS REQUESTING FOR EXCLUSION, THERE WAS NO ARGUMENT BEFORE THE AO/TPO IN RESPECT OF EXCLUSION OF THESE THREE COMPANIES I.E. A) M/S WIPR O BPO LTD., B) M/S VISHAL INFORMATION TECHNOLOGIES LTD AND M/S FORTUNE INFOTECH LTD AND IN RESPECT OF EXCLUSION OF THE 4 TH COMPANY M/S ULTRAMARINE & PIGMENTS LTD., THE CLAIM OF THE ASSESSEE IS THIS THAT PERCEN TAGE OF RPT OF THIS COMPANY IS HIGH AT 35%F OR THE RELEVANT SEGMENT ALT HOUGH THE RPT OF THE TOTAL SALES IS ONLY 7.79% AND FOR THE PURPOSE OF EX AMINING THE RPT PERCENTAGE FOR THE RELEVANT SEGMENT OF THAT COMPANY , MATTER MAY BE RESTORED BACK TO THE FILE OF THE AO/TPO FOR DECIDIN G THIS ASPECT AFTER OBTAINING INFORMATION FROM THAT COMPANY U/S 133(6) OF THE IT ACT, 1961. HENCE, IT IS SEEN THAT OUT OF THE REQUEST OF THE AS SESSEE FOR EXCLUSION OF 5 COMPANIES, THE MATTER HAS TO GO BACK FOR AT LEAST 4 COMPANIES AND THEREFORE, WE FEEL IT PROPER TO RESTORE THE ENTIRE TP MATTER BACK TO THE FILE OF THE AO/TPO FOR FRESH DECISION AFTER PROVIDING AD EQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS WILL TAKE CARE O F THE GRIEVANCE OF THE ASSESSSEE AS WELL AS OF THE REVENUE. WE ORDER ACCO RDINGLY. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALL OWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE ASSESSEE IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- (VIJAY PAL RAO) SD/- (A.K. GARODIA) JUDICAL MEMBER ACCOUNTAN T MEMBER PLACE: BANGALORE: D A T E D : 28.04.2017 AM * COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER, AR, ITAT, BANGALORE 1. DATE OF DICTATION 2. , , DATE ON WHICH TYPED DRAFT IS PLACED BEFORE THE DICT ATING MEMBER .. 3. !' # . $ %# / $ %# # & DATE ON WHICH THE APPROVED DRAFT COMES TO THE PS/SR .PS. 4. ''() & * + DATE ON WHICH THE ORDER IS PLACED BEFORE THE DICTAT ING MEMBER FOR PRONOUNCEMENT 5. * . %# / # . . %# # + DATE ON WHICH THE ORDER COMES BACK TO THE PS/SR.PS .. 6 * !', + DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. ! !', ' , - ) IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO . 8. .% / 0 + DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. * 1'2 / 34 & 5 + DATE ON WHICH ORDER GOES FOR XEROX &ENDORSEMENT 10. 0 6 / + DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 11. * 7 & 0 8 + THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 12. !) * 9() & 0 9() /#5 . + THE DATE ON WHICH THE FILE GOES TO DESPATCH SECTION FOR DESPATCH OF THE TRIBUNAL ORDER 13. * 9() + DATE OF DESPATCH OF ORDER .