Polycom (United Kingdom) Ltd.- India Branch Office, Gurgaon V. DCIT, New Delhi

ITA 5800/DEL/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7448 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 20-11-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 16-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PEEYUSH JAIN

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I NEW DELHI BEFORE SH.S.V.MEHROTRA, ACCOUNTANT MEMBER AND SMT DIVA SINGH, JUDICIAL MEMBER I.T.A .NO. - 5800/ DEL/201 2 (ASSESSMENT YEAR - 2008 - 09 ) POLYCOM (UNITED KINGDOM) LTD - INDIA BRANCH OFFICE, 3 RD FLOOR, TOWER C, BUILDING NO. - 10, PHASE - II, DLF CYBER CITY, GURGAON, HARYANA - 122002 PAN - AADCP222347K (APPELLANT) VS DCIT, CIRCLE - 2(1), INTERNATIONAL TAXATION, NEW DELHI (RESPONDENT) APPELLANT BY SH. HARPREET SINGH, ADV. & SH. NITIN NARANG, CA RESPONDENT BY SH. PEEYUSH JAIN, CIT DR ORDER PER DIVA SINGH, JM BY WAY OF THE PRESENT APPEAL FILED BY THE ASSESSEE THE CORRECTNESS OF THE ORDER U/S 144(13)/143(3) OF THE AO DATED 12.09.2012 I N PURSUANT TO THE DIRECTION O F THE D ISPUTE RESOLUTION PETITION HAS BEEN ASSAILED BY THE ASSESSEE ON VARIOUS GROUNDS . HOWEVER AT THE TIME OF HEARING THE ARGUMENTS WERE CONFINED TO THE EXCLUSION OF ONLY ONE COMPARABLE NAMELY SAKET PROJECTS LTD. IN SUPPORT OF THE SAID PRAYER, RELIANCE WAS PLACED UPON THE FOLLOWING ORDER S OF THE TRIBUNAL: - (I) PREMIER EXPLORATION SERVICES PVT. LTD. VS. ITO IN ITA NO. - 5293/DEL/2012 ORDER DATED 22.11.2013 ( COPY AT PAGE NO. - 327 TO 347 OF THE PAPER BOOK ); (II) YUM RESTAURANTS (INDIA) PVT. LTD. VS ITO IN ITA NO. - 6168/DEL/2012 ORDER DATED 30.05.2014 ( COPY AT PAGES 296 TO 326 OF THE PAPER BOOK ); 2 I.T.A .NO. - 5800 /DEL/201 2 (III) NORTEL NETWORKS INDIA P. LTD. VS ACIT IN ITA NOS.4765/DEL/2011 & 427/DEL/2013 ORDER DATED 25.02.2014 ( COPY AT PAGE NO. - 348 TO 409 AT PAPER BOOK. 1.1 . ATTENTION WAS ALSO INVITED TO PAGE 390 OF THE PAPER BOOK WHICH CONTAINS THE COPY OF THE ANNUAL REPORT OF SAKET PROJECTS FOR FY - 2007 - 08 . REFERRING TO THE SAME SPECIFIC PAGES 374 TO 409 IT WAS SUBMITTED WOULD SHOW THAT THE COMPAN IE S ACCUMULATED LOSS AT THE END OF THE FY 31.03.2008 IS MORE THAN 50% OF ITS NET WORTH AND IT WAS POTENTIALLY A S I C K COMPARABLE ACCORDINGLY ON THE BASIS OF THESE FACTS IT WAS HIS SUBMISSION THAT THE SAID COMPARABLE S H OULD BE EXCLUDED. APART FROM THAT IT WAS HIS SUBMISSION THAT SEGMENTAL DETAILS HAVE BEEN HELD TO BE NOT RELIABLE. 2 . AS OPPOSED TO THE ABOVE PRAYER, LD. CIT DR CONTENDED THAT THE ASSESSEE BEFORE THE TAX AUTHORITIES HAS T AKEN THE PLEA FOR ITS EXCLUSION ON THE GROUND THAT SAKET PROJECTS HAS EA RNED HIGH MARGIN S AS SUCH IT SHOUL D BE EXCLUDED. THE SAID REQUEST IT WAS HIS SUBMISSION HAS RIGHTLY BEEN REJECTED AND THIS FINDING SHOULD BE UPHELD. THE OTHER ARGUMENTS OF THE ASSESSEE THAT THE SEGMENTAL DETAILS ARE NOT RELIABLE SHOULD BE DEMONSTRATED BY THE ASSESSEE AND MERE STATEMEN TS SHOULD NOT BE ACCEPTED. 3 . LD. AR IN RE PLY SUBMITTED THAT APART FROM THE FACT THAT THE SAID COMPARABLE IS A N OUT LIER AND DOES NOT REFLECT THE TREND IS ITESLF SUFFICIENT REASON FOR ITS EXCLUSION BUT EVEN OTHERWISE IT WAS HIS ARGUMENT THAT THE PARTICULAR COMPANY IS FUNCTIONALLY NOT COMPARABLE SINCE AS PER RECORD IT ACCEPTS SPONSORSHIP . THIS FINDING IT WAS SUBMITTED IS AVAILABLE IN THE ORDER S OF THE TRIBUNAL AND THIS FACT MAKES THE SAID COMPARABLE FUNCTIONALLY NOT COMPARABLE . FURTHER BEING A POTENTIAL S I C K COMPANY IT ALSO DOES NOT REFLECT THE TREND AND HAS RIGHTLY BEEN EXCLUDED BY THE TRIBUNAL IN VARIOUS ORDERS AS THE FACT REMAINS THAT IT H A S SHOWN SUPER P ROFIT IN THE YEAR DUE TO ITS PECULIAR FACTS ON ACCOUNT OF S P ONSORSHIP ETC. 4 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS SEEN THAT AS PER THE PROFILE OF THE ASSESSEE AND ITS GROUP THE PO L YCOM GROUP IS CLAIMED TO BE A LEADING PROVIDER OF UNIFIED COLLABORATIVE COMMUNICATIONS - 3 I.T.A .NO. - 5800 /DEL/201 2 CONVERGED VOICE, VIDEO, WEB AND DATA SOLUTIONS FOR EMERGING BROADBAND NETWORKS. POLYCOM INDIA I.E. TAXPAYER IS ESTABLISHED AS A BRANCH OFFICE OF POLYCOM UK LTD. TO RENDER M ARKETING AND POST - SALES SERVICES TO POLYCOM UK LTD. AND TO THE POLYCOM GROUP. I T IS SEEN THAT ALTHOUGH SAKET PROJECTS LTD. WAS OFFERED AS A COMPARABLE BY THE TAX PAYER HOWEVER ITS EXCLUSION HAS BEEN CANVASSED RIGHT FROM THE ASSESSMENT STAGE ON VARIOUS GR OUNDS APART FROM THE GROUND THAT IT HAS SHOWN ABNORMALLY HIGH PROFITS AND THE SAID COMPARABLE CANNOT BE SAID TO REPRESENT THE TREND IN THE INDUSTRY . WE A GREE WITH THE ARGUMENTS OF THE LD. CIT DR THAT EXCLUSION OF A COMPARABLE CANNOT BE MANDATED ON THE G ROUND THAT IT HAS EARNED HIGH MARGINS BECAUSE ONCE FUNCTIONALITY OF A COMPARABLE IS ESTABLISHED THEN ARGUMENTS OF HIGH MARGINS OR LOW MARGINS HAVE NO RELEVANCE AS THE LAW MANDATES TAKING OF THE ARITHMETIC MEAN OF THE COMPARABLE WHICH NATURALLY RESULTS IN IRONING OUT THESE SITUATIONS. HOWEVER ONCE A COMPARABLE FAILS ON THE THRESHOLD OF FUNCTI ON A L ITY ITSELF THE ARGUMENT THAT IT WAS A COMPARABLE OFFERED BY THE ASSESSEE HAS NO MERIT. IN THE FACTS OF THE PRESENT CASE THE ASSESSEE HAS PLEADED THAT THE CO - ORDIN ATE BENCHES OF THE TRIBUNAL IN THE CASE OF NORTEL NETWORKS P. LTD.; M/S PREMIER EXPLORATION SERVICES AND M/S YUM RESTAURANT (INDIA) PVT. LTD. HAVE HELD THAT IT ORGANIZES EVENTS WITH VARIOUS KIND OF SPONSORSHIPS AND IN THE FACE OF THIS CATEGORIC CONSISTENT FINDING QUA THE SAID COMPARABLE WE HAVE NO HESITATION IN HOLDING THAT IT CANNOT BE COMPARABLE TO A COMPANY RENDERING MARKETING AND POST - SALES SUPPORT SERVICES. IN VIEW OF THE FACT THAT THE SAID COMPARABLE FA IL S ON THE TOUCHSTONE OF F UNCTIONALITY THE COMP ANY HAS TO BE EXCLUDED AS IT NO LONGER CAN BE TREATED AS A COMPARABLE. WE HAVE SEEN THAT THE ORDERS OF THE CO - ORDINATE BENCH RELIED UPON BY THE ASSESSEE ALL PERTAIN TO 2008 - 09 ASSESSMENT YEAR. IN VIEW OF THE ABOVE, WE ALLOW THE APPEAL OF THE ASSESSEE TO T HE EXTENT IT WAS ARGUED AND DIRECT THE EXCLUSION OF THE SAID COMPARABLE. THE OTHER GROUND S RAISED BY THE ASSESSEE W ERE NOT PRESSED AS THE ARGUMENTS REMAINED CONFINED TO THE EXCLUSION OF THE SAID COMPARABLE. 4 I.T.A .NO. - 5800 /DEL/201 2 5 . IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 31 ST OF DECEMBER 2014. SD/ - SD/ - ( S.V.MEHROTRA ) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 31 / 1 2 /2014 *AMIT KUMAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI