Atrenta (India) Pvt. Ltd., Delhi V. ITO, New Delhi

ITA 5493/DEL/2013

• Counselvise Citation: 549320114 RSA 2013
• Duration Of Justice: 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 15-01-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 08-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: YOGESH KUMAR
• Assessee Lawyers: S B GARG; SACHIN GARG
• Keywords: Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I NEW DELHI BEFORE SHRI R. S. SYAL, ACCOUNTANT MEMBER AND SMT DIVA SINGH, JUDICIAL MEMBER I.T.A .NO.-5493/DEL/2013 (ASSESSMENT YEAR-2009-10) ATRENTA (INDIA) PVT. LTD., ITO VP 34B, PITAMPURA, WARD 2(2), DELHI-110088 NEW DELHI. PAN: AAECA2163M (APPELLANT) (RESPONDENT) ASSESSEE BY: SH. S. B. GARG, FCA. & SH. SACHIN GARG, FCA. REVENUE BY:-SH. YOGESH KUMAR, CIT, DR. ORDER PER R. S. SYAL, AM. THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) R.W.S. 144C (13) O F THE INCOME- TAX ACT, 1961 (HEREINAFTER CALLED `THE ACT) ON 20. 9.2013 IN RELATION TO THE ASSESSMENT YEAR 2009-10. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE IS ENGAGED IN DEVELOPMENT OF SOFTWARE FOR SEMI-CONDUCT ORS WHICH APPROPRIATELY FALLS UNDER EDA (ELECTRONIC DESIGN AU TOMATION) INDUSTRY. THE ASSESSEE GENERATES WHOLE OF ITS BUSIN ESS FROM ITS I.T.A .NO.-5493/DEL/2013 2 PARENT COMPANY, NAMELY, ATRENTA, USA. THE ASSESSEE DEVELOPS SOFTWARE IN ACCORDANCE WITH THE REQUIREMENTS OF ITS PARENT COMPANY AND GETS COMPENSATION ON COST PLUS 10% MARK -UP. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE ENTERED INTO CERTAIN IN TERNATIONAL TRANSACTIONS WITH ITS FOREIGN ASSOCIATED ENTERPRISE (AE). SUCH TRANSACTIONS HAVE BEEN ENUMERATED ON PAGE 2 OF THE ORDER PASSED BY THE TRANSFER PRICING OFFICER (TPO). THE ASSESSEE ADOPTED TRANSACTIONAL NET MARGIN METHOD (TNMM) AS MOST APPR OPRIATE METHOD. THREE CASES WERE CHOSEN BY THE ASSESSEE AS COMPARABLE. THE TPO REJECTED SUCH COMPARABLE CASES WITH REASONS AND INITIALLY CHOSE EIGHT CASES AS COMPARABLE. ONE OF SUCH CASES WAS SUO MOTU LEFT OUT BY THE TPO AND ANOTHER ONE WAS EXCLUDED ON ASSESSEES REQUEST. THUS HE PROCEEDED WITH SIX CASES FOR BENCH MARKING THE ASSESSEES INTERNATIONAL TRANSACTIONS. IT IS ON THE BASIS OF THESE COMPARABLES AND THEIR PROFIT MARGINS, THAT THE TPO PROPOSED AN ADJUSTMENT U/S 92CA AT RS.4,36,01,947/-. THE ASSESS EE WAS UNSUCCESSFUL BEFORE THE DRP. VIDE THE IMPUGNED ORDE R, THE AO MADE THE ADDITION ON ACCOUNT OF TRANSFER PRICING AD JUSTMENT AT RS.4.36 CRORE AND ODD AS PROPOSED BY THE TPO. THE ASSESSEE IS AGGRIEVED AGAINST SUCH ADDITION. I.T.A .NO.-5493/DEL/2013 3 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LD. AR HAS NOT DISPUTED TH E EXCLUSION OF THE COMPARABLE CASES INITIALLY CHOSEN BY THE ASSESS EE IN ITS TP STUDY. SIMILARLY THERE IS NO CONTROVERSY ON THE SEL ECTION OF THE MOST APPROPRIATE METHOD OR THE PROFIT LEVEL INDICAT OR (PLI). THE MAJOR FOCUS OF THE LD. ARS SUBMISSION WAS AGAINST THE INCLUSION OF TWO CASES BY THE TPO VIZ., INFOSYS LTD AND BODHT REE CONSULTING LTD. IT WAS STATED THAT BOTH THESE CASES WERE INCOM PRABLE AND LIABLE TO BE EXCLUDED. 4.1. THE LD. AR GAVE THE FOLLOWING DISTINGUISHIN G FEATURES BETWEEN INFOSYS LTD. AND ITS CASE TO ACCENTUATE ON ITS EXCLUSION :- (A) INFOSYS LTD. IS A GIANT COMPANY WITH TURNOVER OF RS.20,264 CRORE AS AGAINST THE ASSESSEES TURNOVER OF RS.40.0 4 CRORE. (B) ASSETS EMPLOYED BY INFOSYS LTD. AMOUNT TO RS.5, 986/- CRORE AS AGAINST RS.8.02 CRORE BY THE ASSESSEE. (C) CAPITAL OF INFOSYS LTD. IS RS.17,809/- CRORE AS AGAINST THE ASSESSEES AT RS.18.80 CRORE. (D) INFOSYS LTD. IS A FULL FLEDGED RISK TAKING COMP ANY AS AGAINST THE ASSESSEE BEING A CAPTIVE UNIT ASSUMING NO SUBST ANTIAL RISK. (E) INFOSYS IS AN ITES GLOBAL TECHNOLOGY SERVICE PR OVIDER WHICH DESIGNS AND DELIVERS IT ENABLED BUSINESS SOLUTIONS AS AGAINST THE ASSESSEE DEVELOPING SOFTWARE IN THE FIELD OF EDA ON LY. I.T.A .NO.-5493/DEL/2013 4 (F) INFOSYS LTD. HAS A MUCH WIDER DIVERSIFIED CUSTO MER BASE AS AGAINST THE ASSESSEE HAVING ONLY ONE PARENT COMPANY AS ITS CUSTOMER. (G) THE NUMBER OF EMPLOYEES ON THE PAYROLL OF INFOS YS LTD. STOOD AT 1,04, 850 AS AGAINST ONLY 202 EMPLOYED BY THE ASSESSEE. 4.2. IN ORDER TO STRENGTHEN ITS CASE FOR THE EX CLUSION OF INFOSYS LTD., THE LD. AR RELIED ON SEVERAL DECISIONS RENDER ED BY THE TRIBUNAL INCLUDING THE CASE OF AGNITY INDIA TECHNOL OGIES PVT. LTD. VS. ITO, THE ORDER IN RESPECT OF WHICH HAS BEEN PAS SED BY THE DELHI BENCH OF THE TRIBUNAL DIRECTING THE EXCLUSION OF INFOSYS LTD. FROM THE LIST OF COMPARABLES ON THE BASIS OF CERTAI N FACTORS WHICH WERE STATED TO BE SIMILAR IN ASSESSEES CASE. ALBEI T CERTAIN OTHER ORDERS WERE ALSO RELIED FOR THE SAME PROPOSITION, W E ARE SKIPPING REFERENCE TO SUCH DECISION BECAUSE THE TRIBUNAL ORD ER IN AGNITY INDIA LTD. NOW STANDS APPROVED BY THE HONBLE JURIS DICTIONAL HIGH COURT IN THE CASE OF CIT VS. AGNITY INDIA TECHNOLOGIES PVT. LTD. (2013) 219 TAXMAN 26 (DEL) . PER CONTRA, THE LD. DR SUBMITTED THAT THE QUESTION ABOUT THE MATCHING OF FACTS OF AGNITY INDIA TECHNOLOGIES (SUPRA) WITH THAT OF THE ASSESSEE COUL D NOT BE READILY ANSWERED BECAUSE CERTAIN DETAILS WERE REQUIRED TO B E EXAMINED AT LENGTH IN THIS REGARD. I.T.A .NO.-5493/DEL/2013 5 4.3. IT IS NOTICED THAT THE ASSESSEE TOOK U P SUCH OBJECTIONS BEFORE THE AUTHORITIES BELOW ALSO AND ARGUED FOR TH E EXCLUSION OF SUCH CASE. IT CAN BE SEEN FOR THE ORDERS PASSED BY THE TPO AS WELL AS DRP THAT THE ASSESSEES OBJECTIONS IN THIS REGAR D HAVE NOT APPROPRIATELY BEEN DEALT WITH. FURTHER, THE TPO REF USED TO ACCEPT THE TRIBUNAL DECISION IN THE CASE OF AGNITY LTD.(SU PRA) AND CHOSE TO GO BY ANOTHER CONTRARY ORDER. IT IS AXIOMATIC THAT THE TRIBUNAL ORDER IN AGNITY LTD. NOW STANDS AFFIRMED AND THUS HAS BEC OME BINDING PRECEDENT TO BE RESPECTED AND FOLLOWED BY THE AUTHO RITIES. THOUGH WE HOLD IN PRINCIPLE THAT THE JUDGMENT OF THE HONB LE DELHI HIGH COURT IN AGNITY LTD. (SUPRA) APPEARS TO BE PRIMA FACIE APPLICABLE, WE EQUALLY APPRECIATE THE CONTENTION OF THE LD. DR THAT THE RELEVANT FACTORS NEED TO BE EVALUATED AT THE TPOS END. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER ON THIS ISSUE AND REMIT TH E MATTER TO THE FILE OF THE TPO FOR DECIDING THIS ISSUE AFRESH AS P ER THE MANDATE OF THE AFORESAID VIEW OF THE HONBLE HIGH COURT. NEED LESS TO SAY, THE ASSESSEE WILL BE GIVEN FULL OPPORTUNITY TO PUT FORT H ITS CASE AND LEAD ANY FRESH EVIDENCE OR RELY ON OTHER DECISIONS IN SU PPORT OF ITS CLAIM. 5. THE ASSESSEE HAS OBJECTED TO THE INCLUSION OF TH E CASE OF BODHTREE CONSULTING LTD. BY THE TPO IN THE LIST OF COMPARABLES. IT WAS STATED THAT THE TPO TREATED THIS CASE AS A COMP ANY ENGAGED I.T.A .NO.-5493/DEL/2013 6 ONLY IN SOFTWARE DEVELOPMENT SERVICES AND THUS PR OCEEDED TO COMPARE ITS RESULTS WITH THAT OF THE ASSESSEE. HE S TATED THAT THE ANNUAL ACCOUNTS AND THE OTHER RELEVANT DATA OF THIS COMPANY CLEARLY DEPICTED THAT IT WAS ALSO ENGAGED IN THE BU SINESS OF IT ENABLED SERVICES. THE LD. AR SUBMITTED THAT THE TPO HIMSELF HAS EXCLUDED THE CASE OF ACCENTIA TECHNOLOGIES LTD., VI DE PAGES 45 TO 51 OF HIS ORDER, BY NOTICING THAT THE SAID COMPANY WAS ENGAGED IN THE BUSINESS OF IT ENABLED SERVICES AS AGAINST THE ASSESSEE DEALING IN SOFTWARE SECTOR ALONE. THE LD. AR REFERRED TO CE RTAIN MATERIAL FROM THE WEBSITE OF BODHTREE CONSULTING LTD. AND IT S FINANCIAL ACCOUNTS TO DEMONSTRATE THAT THE SAID COMPANY WAS A LSO ENGAGED IN THE BUSINESS OF ITES AND NOT ONLY IN SOFTWARE SECTO R. IT WAS THEREFORE, CONTENDED THAT THE SAID CASE BE EXCLUDED . THE LD. DR OPPOSED THE CONTENTION BY STATING THAT THE NATURE O F BUSINESS REFERRED TO BY THE LD. AR OF BODHTREE CONSULTING LT D. AS HAVING BEEN ENGAGED IN ITES ALSO WAS NOT CLEAR FROM THEIR FINANCIAL RESULTS OF SUCH COMPANY. AFTER ARGUMENTS, BOTH THE SIDES AGREED THAT THIS CASE MAY ALSO BE SENT BACK FOR FRESH CONS IDERATION AT THE END OF THE TPO. IN OUR CONSIDERED OPINION, IT WOUL D BE JUST AND FAIR IF THE IMPUGNED ORDER ON THIS ISSUE IS ALSO SE T ASIDE AND THE MATTER IS RESTORED TO THE FILE OF THE TPO FOR DECID ING THE QUESTION OF INCLUSION OR OTHERWISE OF THE CASE OF BODHTREE C ONSULTING LTD. AFRESH. IN SUCH FRESH PROCEEDINGS, THE TPO WILL EX AMINE THE I.T.A .NO.-5493/DEL/2013 7 ASSESSEES CONTENTION OF SUCH COMPANY BEING ALSO EN GAGED IN ITES AND NON-AVAILABILITY OF SEGMENTAL DATE QUA THE SOFTWARE SECTOR. THE TPO WILL DECIDE THIS ISSUE AFTER ENTERTAINING THE O BJECTIONS FROM THE A.O. IN THIS REGARD. 6. SINCE WE HAVE RESTORED THE MAIN ISSUE AS REGARDS THE INCLUSION OF THE ABOVE REFERRED TWO COMPARABLE CASE S TO THE FILE OF TPO AND THERE ARE CERTAIN OTHER ISSUES ALSO RAISED BY THE LD. AR IN THIS APPEAL WHICH WERE NOT PROPERLY ADDRESSED BY TH E AUTHORITIES BELOW, WE DIRECT THE CONSIDERATION OF SUCH ISSUES A LSO AFRESH AFTER DUE OPPORTUNITY TO THE ASSESSEE. 7. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIST ICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 17/01/2014. SD/- (R. S. SYAL) ACCOUNTANT MEMBER I AGREE WITH THE CONCLUSION HOWEVER AFTER DISCUSSIO N AMONGST US I WOULD ONLY ADD THAT THE ORIGINAL GROUNDS SUBSTITUTE D BY THE REVISED GROUNDS ARE TAKEN ON RECORD ON WHICH BOTH THE PARTI ES HAD APPEARED. SD/- (DIVA SINGH ) JUDICIAL MEMBER DATED: 17/01/2014 *AK VERMA* I.T.A .NO.-5493/DEL/2013 8 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR DATE INITIAL 1. DRAFT DICTATED ON 15-1-2014 PS 2. DRAFT PLACED BEFORE AUTHOR 15-1-2014 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 17-1-2014 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 17-1-2014 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.