ACIT, Dehradun V. M/s. Schlumberger Solutions Pvt. Ltd., Gurgaon

ITA 5834/DEL/2016

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 4223 (ITAT-DEHRADUN)
• Duration Of Justice: 4 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 15-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: THAKUR SINGH MAPWAL
• Assessee Lawyers: SHR SANJAY SHUKLA
• Keywords: Transfer pricing; International transaction; Rule of consistency
• Section: 43B; 201; 13; 92CA

Judgement Text

PAGE | 1 INCOME TAX APPELLATE TRIBUNAL DEHRADUN CIRCUIT BENCH: DEHRADUN BEFORE SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 5834 /DEL/ 201 6 (ASSESSMENT YEAR: 2012 - 13 ) ACIT, CIRCLED - 2, 13 - A, SUBHASH ROAD, DEHRADUN VS. SCHLUMBERGER SOLUTIONS PVT LTD, 14 TH FLOOR, BUILDING NO. 10, TOWER CDLF, CYBER CITY, PHASE - II, GURGAON PAN: AAICS0296H (APPELLANT (RESPONDENT) REVENUE BY: SHRI THAKUR SINGH MAPWAL, SR DR ASSESSEE BY : SHR SANJAY SHUKLA, CA DATE OF HEARING 04 /03/2021 DATE OF PRONOUNCEMENT 3 1 / 05 /2021 O R D E R PER PRASHANT MAHARISHI, A. M. 1. THIS APPEAL IS FILED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 2, DEHRADUN (THE LEARNED AO) AGAINST THE DIRECTION ISSUED BY THE LEARNED DISPUTE RESOLUTION PANEL 2, NEW DELHI (THE LEARNED DRP) WHICH CULMINATED INTO AN ORDER PASSED THE LD AO/ ASSTT. CIT, CIRCLE - 2, DEHRADUN DATED 22.09.2016 FOR THE ASSESSMENT YEAR 2011 - 12 . 2. THE ASSESSEE HAS RAISED THE FOLLOWIN G GROUNDS OF APPEAL: - 1. THE HONBLE DRP HAS ERRED IN LAW AND ON FACTS IN REJECTING THE COMPARABLES SELECTED BY THE TPO WITHOUT APPRECIATING THE FACTS AND FUNCTIONAL COMPARABILITY OF ASSESSEE COMPANY WITH THAT OF THE COMPARABLES SELECTED BY THE TPO IN THIS CASE. 2. THE HONBLE DRP HAS ERRED IN LAW AND ON FACTS IN CARRYING OUT ARBITRARY ANALYSIS WHILE REJECTING THE TNMM AS THE MOST APPROPRIATE METHOD APPLIED BY THE TPO AND ACCEPTING CUP AS MAM IN CASE OF MUD ENGINEERING SERVICES RECEIVED BY THE ASSESSEE WITHOUT VERIFYING AND ANALYSIS OF THE FACTS OF THE CASE. 3. THE HONBLE DRP HAS ERRED IN LAW AND ON FACTS BY ALLOWING THE UNPAID SERVICE TAX LIABILITY WITHOUT APPRECIATING THE FACT APPLYING THE PRINCIPLE LAID DOWN BY THE HONBLE SUPREME COURT IN CASE OF CH OWRINGHEE SALES BUREAU (P) LTD. VS. CIT 87 ITR 542 [1973], LIKE SALES TAX, SERVICE TAX IS ALSO IN NATURE OF INDIRECT TAX AND, THEREFORE, IF SHOWN PAYABLE SHALL BE ALLOWED ONLY IN THAT PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID. 3. FACTS SHOWS THAT ASSESSEE IS AN INDIAN COMPANY ENGAGED IN THE BUSINESS OF PROVIDING SYSTEM CONSULTANCY AND INTEGRATION SERVICES, SOLUTIONS, ASSISTANCE AND MAINTENANCE SERVICES RELATING PAGE | 2 TO HARDWARE AND SOFTWARE, DATA MANAGEMENT SERVICES AND INTEGRATED PROJE CT MANAGEMENT SERVICES. 4. ASSESSEE FILED ITS RETURN OF INCOME ON 30/11/2012 DECLARING TAXABLE INCOME OF 241,366,520/ . THE ASSESSEE HAS ENTERED INTO SEVERAL INTERNATIONAL TRANSACTION S. . HOWEVER THE DISPUTE BEFORE US IS WITH RESPECT TO BENCHMARKING OF TH E RECEIPT OF SUBCONTRACTING SERVICES AMOUNTING TO 925,788,968/ . F ACT SHOWS THAT DURING THE YEAR THE ASSESSEE HAS AVAILED SUBCONTRACTING SERVICES FROM ITS ASSOCIATED ENTERPRISE IN RELATION TO A CONTRACT AWARDED BY ONGC TO ASSESSEE. THE ENTIRE WORK UNDER THE MAIN CONTACT WITH THE ONGC HAS BEEN SUBCONTRACTED BY ASSESSEE TO SUBCONTRACTORS ON BACK - TO - BACK BASIS. THE ASSESSEE BENCHMARK ED ABOVE TRANSACTION BY ADOPTING CUP METHOD . HOWEVER THE LEARNED TRANSFER PRICING OFFICER HELD THAT TRANSACTIONAL NET MARGIN METHOD IS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE ABOVE TRANSACTION. THEREFORE AFTER GIVING THE OPPORTUNITY OF HEARING TO THE ASSESSEE, THE LEARNED TRANSFER PRICING OFFICER SELECTED FIVE COMPARABLES WHOSE MARGIN WAS 23.90% AND PROPOSED AN A DJUSTMENT OF 207,761,971 TO THE INTERNATIONAL TRANSACTION OF THE SUBCONTRACTING SERVICES. THE ORDER U/S 92CA (3) OF THE ACT WAS PASSED ON 30/1/2016. CONSEQUENTLY DRAFT ASSESSMENT ORDER WAS PASSED ON 10 TH OF MARCH 2016 WHEREIN THE ABOVE ADJUSTMENT WAS INC ORPORATED AND TOTAL INCOME OF THE ASSESSEE WAS ASSESSED AT 507,025,103 AGAINST THE NET TAXABLE INCOME AS PER RETURN OF INCOME OF 241,366,520/ .THE LEARNED ASSESSING OFFICER FURTHER HELD THAT SERVICE TAX LIABILITY OF 51,868,804/ IS ALSO DISALLOWABLE U/S 43B OF THE ACT. 5. ASSESSEE PREFERRED AN OBJECTION BEFORE THE LEARNED DISPUTE RESOLUTION PANEL 2, NEW DELHI WHO HELD THAT THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE TRANSACTION OF RECEIVING THE SUBCONTRACTING SERVICES IS CUP AS PER THE DIRECTION OF THE PANEL FOR EARLIER YEAR , WHICH HAS BECOME FINAL . WITH RESPECT TO THE DISALLOWANCE OF SERVICE TAX THE LEARNED DISPUTE RESOLUTION PANEL HELD THAT ASSESSEE HAS NOT CLAIMED THE PROVISIONS OF THE SERVICE TAX IS AN EXPENSES AND THEREFORE IN ABSENCE OF SUC H CLAIM THE DISALLOWANCES NOT WARRANTED. 6. BASED ON THE ABOVE DIRECTION THE LEARNED ASSESSING OFFICER PASSED THE FINAL ASSESSMENT ORDER ON 22/9/2016 DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT 242,298,237/ AGAIN THE RETURNED INCOME OF 241,366,520. H OWEVER THE LEARNED AO IS AGGRIEVED WITH THE DIRECTION OF THE LEARNED DISPUTE RESOLUTION WITH RESPECT TO THE DETERMINATION OF THE MOST APPROPRIATE METHOD OF THE SUBCONTRACTING SERVICES INCOME OF THE ASSESSEE AS WELL AS THE DELETION OF THE DISALLOWANCE OF TH E PROVISION OF SERVICE TAX AND THEREFORE HAS PREFERRED THIS APPEAL. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE REITERATED THE FACTS AND THE GROUNDS RAISED BY THE LEARNED ASSESSING OFFICER WHEREAS THE LEARNED AUTHORISED REPRESENTATIVE SUPPORTED THE ORDER OF TH E LEARNED DISPUTE RESOLUTION PANEL. PAGE | 3 8. WEVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE LEARNED ASSESSING OFFICER/TRANSFER PRICING OFFICER AS WELL AS THE DIRECTION OF THE LEARNED DISPUTE RESOLUTION PANEL. WITH RESPECT TO THE DETE RMINATION OF THE ALP OF THE INTERNATIONAL TRANSACTION OF THE RECEIPT OF THE SUB CONTRACT SERVICES THE ASSESSEE HAS APPLIED CUP METHOD AS THE MOST APPROPRIATE METHOD WHEREAS THE LEARNED TRANSFER PRICING OFFICER ADOPTED TRANSACTIONAL NET MARGIN METHOD AS T HE MOST APPROPRIATE METHOD . THE LEARNED DISPUTE RESOLUTION PANEL FOLLOWING ITS DIRECTION IN THE EARLIER YEAR HELD THAT THE APPLICABILITY OF CUP BY THE ASSESSEE IS A GOOD METHOD IN THE CIRCUMSTANCES. THE LEARNED DRP ALSO RELIED UPON THE FACTUAL METRICS OF THE EARLIER YEAR COMPARED TO THIS YEAR AND STATED THAT THERE IS NO DIFFERENCE BETWEEN THEM. THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT SHOW US THAT WHAT ARE THE DIFFERENCES IN THE FACTUAL METRICS FOR THE YEAR FOR WHICH THE LEARNED DISPUTE RESOLUTION PANEL RELIED UPON ITS DIRECTION COMPARED TO THIS YEAR. THUS FOR THE PURPOSE OF CERTAINITY AND ON PRINCIPLE OF CONSISTENCY WE UPHOLD THE DIRECTION OF THE LEARNED DISPUTE RESOLUTION PANEL. THUS GROUND NUMBER 1 AND 2 OF THE APPEAL OF THE LEARNED ASSESSING O FFICER ARE DISMISSED. 9. WITH RESPECT TO THE THIRD GROUND THE LEARNED DISPUTE RESOLUTION PANEL HAS CATEGORICALLY HELD THAT ASSESSEE HAS NOT CLAIMED DEDUCTION OF THE SERVICE TAX EXPENDITURE AND THEREFORE THERE IS NO QUESTION OF MAKING ANY DISALLOWANCE ON THAT ACCOUNT. THE LEARNED DEPARTMENT REPRESENTATIVE COULD NOT SHOW WAS ANY REASON TO DIFFER FROM THE DIRECTION OF THE LEARNED DISPUTE RESOLUTION PANEL. IN VIEW OF THIS WE DISMISS GROUND NUMBER 3 OF THE APPEAL OF THE LEARNED ASSESSING OFFICER. 10. IN THE RESULT APPE AL OF THE LEARNED AO IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 1 . 05 .2021. . - S D / - - S D / - (SUDHANSHU SRIVASTAVA) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 3 1 . 05 .2021 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI