BMC Software India Private Limited, Pune V. Assistant Commissioner of Income Tax, Circle - 1 (1), Pune, Pune

ITA 598/PUN/2022

AI Insights

The case involves BMC Software India Pvt. Ltd., which appealed against the orders of the Assistant Commissioner of Income Tax and the Dispute Resolution Panel concerning transfer pricing adjustments and other disallowances for the assessment years 2017-18, 2018-19, and 2008-09. The primary issues revolved around the retention of transfer pricing adjustments despite an APA and the non-consideration of a modified return. Additionally, the case addressed the disallowance of finance lease rentals and PRI line charges, as well as the initiation of penalty proceedings under various sections of the Income-tax Act. The Tribunal found that the A.O did not properly consider the modified return and the provisions of section 92CD(4) regarding the APA, leading to a remand for re-evaluation.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124531 (ITAT-PUNE)
• Duration Of Justice: 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Next Hearing Date: 08-02-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 26-07-2022
• Other Referred Cases: Pr. CIT-2 Vs. Lee & Murihead (P) Ltd., CIT Vs. Kotak Securities Ltd., Schlumberger Global Support Centre Limited Vs. DDIT, Philips Software Centre India Pvt. Ltd. Vs. ACIT, Sony India (P) Ltd. Vs. DCIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Principle of natural justice; Additional evidence; Initiation of penalty proceedings; Difference of opinion; Reassessment proceedings; TDS; Set aside
• Section: 37; 271(1)(c); 143(3); 234B; 40(a)(ia); 10B; 194J; 13; 119

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, PUNE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER ITA No. 597/PUN/2022 & 598/PUN/2022 A.Y. 2017-18 & 2018-19 ITA No. 619/PUN/2022 A.Y. 2008-09 BMC Software India Pvt. Ltd. Business Bay, Wing 1, Tower B 9 th floor, Survey No. 103, Hissa No. 2, Airport Road, Yerawada, Pune-411 06 PAN; AABCB 6110 E Appellant Vs. The Asstt. CIT Cir. 1(1), Pune Respondent Appellant by : Shri Farrokh Irani Respondent by : Shri Ganesh Bare, CIT Date of Hearing : 09-02-2023 Date of Pronouncement : 13-2-2023 ORDER PER BENCH These appeals preferred by the assessee emanates from separate orders of the Disputes Resolution Panel-3, Mumbai, dated 25-04-2022 for A.Y. 2017-18, dated 28-04-2022 for A.Y. 2018-19 and dated 19-05-2022 for A.Y. 2008-09 passed u/s 144C(5) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) as per the grounds of appeal appearing hereinafter. 2. At the time of hearing, the parties herein agreed that the facts and circumstances of the issues involved in all these appeals are absolutely identical and similar. These cases are therefore, heard together and are disposed of by this consolidated order. 3. ITA No. 597/PUN/2022 for A.Y. 2017-18 The assessee has raised the following grounds of appeal. “Based on the facts and circumstances of the case, BMC Software India Private Limited (hereinafter referred to as 'the Appellant') respectfully craves leave to prefer an appeal under section 253(1 )(d) of the Income-tax Act, 1961 (hereinafter referred to as 'Act'), against the order dated 30 May 2022 (received on 30 May 2 ITA No. 597, 598 & 619 of 2022 A.Y. 2007-18, 2018-19 & 2008-09 BMC Software India 2022) passed by the Assistant Commissioner of Income Taxi Circle 1 (1), Pune (hereinafter referred to as 'learned AO') under section 143(3) r.w.s. 144C(13) of the Act in pursuance of the directions dated 25 April 2022 issued by the Honorable Dispute Resolution Panel (hereinafter referred to as 'Hon'ble DRP'), on the following grounds: On the facts and in the circumstances of the case and in law, the Hon'ble DRP and consequentially the learned AO have: Grounds of Objections in respect of transfer pricing adjustment 1, Erred in retaining the transfer pricing adjustment of INR 32,83,79,248 while passing the final assessment order 1.1 Erred in retaining the transfer pricing adjustment made to software development segment (amounting to INR 21,49,88,149) and IT enabled service segment (amounting to INR 11,33,91,099) in the final assessment order despite the fact the Appellant has signed an Advance Pricing Agreement (,APA) with the Central Board of Direct Taxes ('CBDT') and the Appellant has offered additional income in the Modified Return of Income filed within statutory timeline revising its income in accordance with the APA agreement. 1.2. While retaining the transfer pricing adjustment as stated in serial no. 1.1 as above, failed to appreciate the provisions of section 92CD( 4). It provides that where assessment or reassessment proceedings for an Assessment Year (AY) relevant to Previous Year (PY) to which the agreement (APA) applies are pending on the date of filing of modified return as per Section 92CD(1), the AO shall proceed to complete the assessment or reassessment in accordance with agreement (APA) after taking into account modified return so furnished. 1.3. Erred in not considering the extended timeline for completion of assessment i.e. twelve months provided under section 92CD(5)(b) r.w.s 153 of the act and hastily passing the final assessment order. II Grounds of appeal in respect of disallowances additions other than transfer pricing adjustment 2. Erred in disallowance of finance lease rentals (excluding interest) under section 37 of the Act, which is not warranted in view of CBDT Circular no 2 of 2001 dated 9 February 2001 Erred in considering the amount of Rs. 6,73,37,3831- being lease rental paid as inadmissible expenses and accordingly, disallowing the amount under section 37 of the Act. 3. Erred in disallowance of Primary Rate Interface (PRI) Line charges paid to telecom companies amounting to INR 1,76,53,824 on account of non-withholding of taxes Erred in disallowance of the charges paid to telecom companies such as Bharti Airtel, Tata Communications, and Vodafone Cellular under section 40(a)(ia) by treating the same as leased line charges and not appreciating the fact that the above charges are for standard PRI line charges, which require no human intervention and consequently, does not qualify as fees for technical services. III Other grounds of appeal 4. Erroneous levy of interest under section 234B of the Act Erred in levying additional interest under section 234B of the Act of INR 7,68,89,052 on account of unanticipated additions made to the total income of the Appellant on account of transfer pricing and corporate tax adjustment which is due to difference of opinion and as at the due date of payment of advance tax by no 3 ITA No. 597, 598 & 619 of 2022 A.Y. 2007-18, 2018-19 & 2008-09 BMC Software India means the Appellant could have estimated such adjustments and consequential tax on such adjustment. 5. Initiation of penalty proceedings under sec 270A of the Act Erred in initiating penalty proceedings under section 270A of the Act without appreciating the facts that transfer pricing adjustment to the international transactions of the Appellant and corporate tax adjustment made is on account of difference of opinion as to application of selection criterion for selection of comparable companies, incoherent approach, interpretation of the provisions, interpretation of case laws etc. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Honourable Income-tax Appellate Tribunal to decide this appeal according to law.” 4. Ground No. 1 contested in this appeal by the assessee can be understood in consonance with para 2.4.4 of the ld. D.R.P‟s finding which is as follows: “2.4.4 The assessee signed a APA agreement with CBDT on 15-12-2021, a copy of which has also been submitted before the DRP. This agreement is applicable to nine consecutive years commencing from A.Y. 2011-12 to F.Y. 2019-20 relevant to A.Ys 2012-13 to 2020-21. Hence the captioned A.Y vis. A.Y. 2017-18 is covered in the APA agreement. In view of the above, the assessee has requested to withdraw the objections pertaining to the Transfer Pricing adjustments which are Objection Nos. 2 to 13. Accordingly, these objections are dismissed as not pressed/withdrawn.” 5. The ld. Counsel for the assessee, at the time of hearing submitted that since the assessee has signed a APA agreement with CBDT, objection raised in A.Y. 2017-18 was therefore, covered by the APA agreement. In view of this fact, the assessee had withdrawn objections pertaining to Transfer Pricing adjustments which were objections No. 2 to 13 before the ld. D.R.P. Accordingly, the ld. D.R.P dismissed these objections as not pressed/withdrawn. 6. The ld. Counsel further contended that in pursuant to entering upon the said APA agreement, the assessee had filed modified return in accordance with the provisions of section 92CD(1) of the Act. The time limit prescribed in this provision for filing the modified return is within a period of three months from the end of the month in which the said agreement was entered into. In this case, the assessee had entered into an APA agreement on 15-12-2021 and 4 ITA No. 597, 598 & 619 of 2022 A.Y. 2007-18, 2018-19 & 2008-09 BMC Software India had filed the modified return on 17-3-2022. Thus, the modified return filed was within the time framed as specified in the provision. The ld. D.R.P had passed its order on 25-4-2022 and thereafter, final assessment order was passed on 30-5-2022. That on receiving the final assessment order, it was noticed by the assessee that the A.O retained the transfer pricing adjustment with regard to software development segments and IT enabled service segments in the final assessment order and had not considered the modified return filed by the assessee and the A.O should have considered the modified return while completing the assessment as mandated u/s 92CD(4) of the Act. 7. We observe that undisputedly the assesse had signed APA agreement with CBDT on 15-12-2021 and this fact also emerges at para 2.4.4 of the ld. D.R.P‟s finding. It is also an admitted fact that pursuant to this APA agreement, the assessee had filed modified return on 17-03-2022 which was within the time stipulated u/s 92CD(1) of the Act. Once the modified return has been filed section 92CD(4) of the Act spells out that the A.O shall proceed to complete the assessment order or re-assessment proceedings in accordance with agreement taking into consideration the modified return so furnished. Unfortunately in this case, the A.O has retained original transfer pricing adjustment without considering the modified return filed as per the mandate of section 92CD(4) of the Act. We further observe that the modified return was filed on 17-03-2022 and the ld. D.R.P has given their findings on 25-04-2022. Thereafter, the final assessment order was completed by the A.O on 30-05- 2022 which means that already the modified return was before the A.O., but he has not considered the same violating the provisions of section 92CD(4) of the Act. The ld. Counsel had submitted before us, at the time of hearing that this ground may be remanded back to the file of the A.O for giving appropriate consideration to the modified return filed by the assessee. The ld. D.R did not 5 ITA No. 597, 598 & 619 of 2022 A.Y. 2007-18, 2018-19 & 2008-09 BMC Software India raise any objection if the ground is remanded back to the file of the A.O. We are of the considered view, in the interest of justice, therefore, this ground should be remanded back to the file of the A.O for re-adjudication as per law complying with the principles of natural justice. We order accordingly. Ground No. 1 is allowed for statistical purposes. 8. In ground No. 2, the assessee is aggrieved with the addition of Rs. 6,73,37,383/- being the lease rental paid which was held as inadmissible expenses and the amount was disallowed u/s 37 of the Act. The ld. Counsel submitted that the assessee was unable to submit evidences regarding merits of this issue before the A.O and also before the ld. D.R.P. due to covid pandemic prevailing at that point of time. He demonstrated that the order of the A.O is dated 10-09-2021 which was the period of on-going pandemic and the ld. D.R.P. had given their findings on 25-04-2022 and during this period the office of the assessee has not started functioning. The ld. Counsel in this regard placed before us a letter from the Country Head of the assessee issued to all the concerned persons that the assessee‟s office shall start functioning from May 2022. Therefore, it was not possible for the assessee to file evidences on this issue before the Department. He prayed for admission of evidences before the Tribunal in form of additional evidences to be remanded to the file of the A.O for re-adjudication as per law. 9. We have perused all relevant documents in this regard and find that the contentions raised by the ld. Counsel for the assessee are valid and true. The evidences on the issue of lease rental paid could not be submitted by the assessee due to the circumstances prevailing at that point of time viz. covid pandemic. In the interest of justice, therefore, we admit the evidences as additional evidences and remand this ground to the file of the A.O for re- adjudication as per law complying with the principles of natural justice while 6 ITA No. 597, 598 & 619 of 2022 A.Y. 2007-18, 2018-19 & 2008-09 BMC Software India considering the evidences furnished by the assessee. Ground No. 2 is allowed for statistical purposes. 10. Ground No. 3 pertains to disallowance of Primary Rate Interface (PRI) line charges paid to telecom companies. This ground is covered in favour of the assessee in assessee‟s own case for A.Y. 2016-17 in ITA No. 270/PUN/2021, order dated 09-09-2022 wherein the Tribunal had considered assessee‟s own case in ITA No.2038/PUN/2018 for A.Y. 2015-16, order dated 07-06-2022, wherein also relief was given to the assessee. The Tribunal had relied on the decision of Hon‟ble Bombay High Court in the case of Pr. CIT-2 Vs. Lee & Murihead (P) Ltd. (2020) 119 taxmann.com 499 (Bombay) and in that decision the Hon‟ble High Court referred to the decision of Hon‟ble Supreme Court in the case of CIT Vs. Kotak Securities Ltd. (2016) 67 taxmann.com 356 (SC) while providing relief to the assessee. The relevant para is extracted as follows: 6. The next ground for adjudication is Ground No. 13 as per the original grounds of appeal which pertains to disallowance of Primary Rate Interface (PRI) line charges paid to telecom companies amounting to Rs. 1,18,04,423/- on account of non-withholding of taxes. In the draft assessment order this issue has been discussed from para 6 onwards. After considering the submissions of the assessee, the A.O held that the assessee is engaged in the software development and production of software products. Telephone with high quality of network is required for such work. Therefore, it is technical service and hence TDS has to be deducted u/s 194J of the Act . The A.O has also observed that similar addition was confirmed by the D.R.P. in assessee’s own case for A.Y. 2014-15 and 2015-16. In the assessment order, this issue has been dealt with on page 9 para 6.3 onwards. The A.O held therefore, that it is a technical service and TDS has to be deducted u/s 194J of the Act. Similarly, the ld. D.R.P have given their findings on this issue from para 14.2 of their order and at para 16.6 and 16.7 it was held as follows: 16.6 The above mentioned contentions of the assessee have been carefully examined and they are found to be untenable for the following reasons: (a) While the A.O. stated that the payments made by the assessee to the telecom service providers are towards dedicated leased lines, the assessee claimed that the payments were made towards use of PRI lines which are not dedicated leased lines. However, it is noticed that the assessee has not furnished any documentary evidences in support of this factual claim. In the absence of the same, this claim of the assessee needs to be disregarded. (b) Though the assessee sought to apply the ratio of the decision of the Hon'ble Supreme Court in the case of Kotak Securities Ltd. to contend 7 ITA No. 597, 598 & 619 of 2022 A.Y. 2007-18, 2018-19 & 2008-09 BMC Software India that the payments made by it for the use of PRl lines cannot be treated as fees for technical services as PRI lines are standard facilities available to any consumer, it is seen that the assessee has not furnished any documentary evidence by way of authentic technical literature in support of its claim that PRI lines are in the nature of standard facilities. The ratio of the decision of the Hon'ble Supreme Court cannot be considered to be applicable to the facts of the assessee's case, as the assessee failed to substantiate its claim that PRl lines are in the nature of standard facilities. 16.7 In view of the above the contentions advanced by the assessee to state that the payments made for the use of PRl lines do not fall under the scope of fees for technical services and consequently they are not liable for TDS u/s . 194J are considered to be unsubstantiated. We are therefore of the view that the A.O. has rightly treated the said payments as fees for technical services liable for TDS uls.194J and has rightly disallowed the said expenditure uls.40(a)(ia) in view of the failure of the assessee to make TDS. Hence, this ground of objection is rejected. " 7. We find that this issue is squarely covered in favour of the assessee by the order of Pune Tribunal in assessee’s own case in ITA No. 2038/PUN/2018 for A.Y. 2015-16, order dated 07-06-2022 wherein it was held as follows: ITA No. 2038/PUN/2019 for A.Y. 2015-16 The assessee has submitted revised/modified grounds of appeal and at the time of hearing, the ld. Counsel submitted that broadly there are three issues for adjudication in the present appeal. The first issue is addition in respect of disallowance of Primary Rate Interface (PRI) Line charges paid to Telecom Companies amounting to Rs. 60,45,238/- on account of non-withholding of taxes. The submission of the assessee is that the subordinate authorities have erred in disallowing the charges paid to Telecom Companies such as Bharati Airtel, Tata Communications and Vodafone Cellular u/s 40(a)(ia) of the Act by treating the same as leased line charges and not appreciating the fact that the above charges were for standard PRI line charges which require no human intervention and consequently does not qualify as fees for technical services. In this regard, at the very outset, the ld. Counsel submitted that the issue is squarely covered by the decision of the Hon‟ble Jurisdictional High Court in favour of the assessee in the case of Pr. CIT-2 Vs. Lee & Murihead (P) Ltd. [2020] 119 taxmann.com 499 (Bombay). It was held by the Hon‟ble Bombay High Court as follows: “The last question (i.e. question No. (d) pertains to the disallowance u/s 40(a)(ia) of the Act on account of non-deduction of tax at source by the assessee while making payment to Vi9desh Sanchar Nigam Ltd. Towards leased line charges. On merits, the Revenue had placed reliance on a decision of this Court in case of CIT Vs. Kotak Securities Ltd. [2012] 20 taxmann.com 846/340 ITR 333 (Bom. The Tribunal however, held that the amount in question was below Rs. 10 lakhs which was a minimum monetary limit enabling the Revenue to prefer appeal against the Commissioner’s Appellate orders before the Tribunal. Revenue argues before us that the Tribunal should have seen the monetary limit of the combined appeals of the assessee as well as the Revenue arising out of the common judgment of the CIT(A) pertaining to the assessee for the same assessment year. In our opinion, this question is not required to be examined in view of the fact that the decision of this Court in case of Kotak Securities (supra) has been revised by the Supreme Court in the case of CIT Vs. Kotak Securities Ltd. [2016] 67 taxmann.com 356/239 Taxman 139/383 ITR 1 (SC). Resultantly, on the merits also, the Revenue would have no ground to succeed.” Respectfully following the aforesaid decision, we direct the A.O/T.P.O to delete the addition on lease line charges from the hands of the assessee. Accordingly, this ground of appeal of the assessee is allowed.” 8. In the aforestated decision, the Tribunal relied on the decision of Hon’ble Bombay High Court in the case of Lee & Murihead (P) Ltd. (2020) 119 8 ITA No. 597, 598 & 619 of 2022 A.Y. 2007-18, 2018-19 & 2008-09 BMC Software India taxmann.com 499 (Bom). Further, we find that in the said decision, the Hon’ble Bombay High Court had referred to the decision of Hon’ble Supreme Court in the case of CIT Vs. Kotak Securities Ltd. (2016) 67 taxman.com 356 (SC) while providing relief to the assessee. This decision of Hon’ble Apex Court has been placed before us in the paper book filed at page 1112 onwards. In view of the aforestated judicial pronouncement where the addition on lease line charges have been deleted, respectfully following the same, on the same parity of reasoning this ground of appeal of the assessee is allowed and the A.O/T.PO is directed to delete addition on lease line charges from the hands of the assessee. Ground No. 13 is allowed.” 11 In fact this issue is consistently held in favour of the assessee from A.Ys. 2012-13 to 2016-17. The ld. D.R could not place on record any contrary facts and therefore, maintaining the same parity of reasoning and consistency on the issue, following our earlier orders, this ground is allowed in favour of the assessee. Ground No. 3 is allowed. 12. Ground Nos. 4 and 5 are consequential. 13. In the combined result, the appeal in ITA No. 597/PUN/2022 for A.Y. 2017-18 is partly allowed for statistical purposes. 14. In ITA No. 598/PUN/2022 for A.Y. 2018-19 the assessee has raised the following grounds: “Based on the facts and circumstances of the case, BMC Software India Private limited (hereinafter referred to as 'the Appellant') respectfully craves leave to prefer an appeal under section 253(1 )(d) of the Income-tax Act, 1961 (hereinafter referred to as 'Act'), against the order dated 30 May 2022 (received on 30 May 2022) passed by the Assistant Commissioner of Income Taxi Circle 1 (1), Pune (hereinafter referred to as 'learned AO') under section 143(3) r.w.s. 144C(13) of the Act in pursuance of the directions dated 28 April 2022 issued by the Honorable Dispute Resolution Panel (hereinafter referred to as 'Hon'ble DRP'), on the following grounds: On the facts and in the circumstances of the case and in law, the Hon'ble DRP and consequentially the learned AO have: 1. Grounds of Objections in respect of transfer pricing adjustment 1. Erred in retaining the transfer pricing adjustment of INR 38,88,58,313 while passing the final assessment order 1.1 Erred in retaining the transfer pricing adjustment made to software development segment (amounting to INR 19,53,92,483) and IT enabled service segment (amounting to INR 19,34,65,830) in the final assessment order despite the fact the Appellant has signed an Advance Pricing Agreement ('APA) with the Central Board of Direct Taxes ('CBDT') and the Appellant has offered additional income in the Modified Return of Income filed within statutory timeline revising its income in accordance with the APA agreement. 1.2 While retaining the transfer pricing adjustment as stated in serial no. 1.1 as above, failed to appreciate the provisions of section 92CD( 4). It provides that where assessment or reassessment proceedings for an 9 ITA No. 597, 598 & 619 of 2022 A.Y. 2007-18, 2018-19 & 2008-09 BMC Software India Assessment Year (AY) relevant to Previous Year (PY) to which the agreement (APA) applies are pending on the date of filing of modified return as per Section 92CD(1), the AO shall proceed to complete the assessment or reassessment in accordance with agreement (APA) after taking into account modified return so furnished. 1.3 Erred in not considering the extended timeline for completion of assessment i.e. twelve months provided under section 92CD(5)(b) r.w.s 153 of the act and hastily passing the final assessment order. II. Grounds of appeal in respect of disallowances! additions other than transfer pricing adjustment 2. Erred in disallowance of finance lease rentals (excluding interest) under section 37 of the Act, which is not warranted in view of CBDT Circular no 2 of 2001 dated 9 February 2001 Erred in considering amount of Rs. 4,94,25, 116!- being lease rental paid as inadmissible expenses and accordingly, disallowing the amount under section 37 of the Act. 3. Erred in disallowance of expenditure of INR 1,56,57,518/· made pursuant to ESOP scheme floated by the Appellant's parent company Erred in disallowance of expenses incurred pursuant to ESOP scheme treating the same as a capital item akin to securities premium and not appreciating the fact that these expenses are deductible under section 37 of the Act. III Other grounds of appeal 4. Erroneous levy of interest under section 234B of the Act. Erred in levying additional interest under sections 2348 and 234C of the Act of INR 8,57,20,422 and 3,54,132 respectively on account of unanticipated additions made to the total income of the Appellant on account of transfer pricing and corporate tax adjustment which is due to difference of opinion and as at the due date of payment of advance tax by no means the Appellant could have estimated such adjustments and consequential tax on such adjustment. 5. Initiation of penalty proceedings under sec 270A of the Act Erred in initiating penalty proceedings under section 270A of the Act without appreciating the facts that transfer pricing adjustment to the international transactions of the Appellant and corporate tax adjustment made is on account of difference of opinion as to application of selection criterion for selection of comparable companies, incoherent approach, interpretation of the provisions, interpretation of case laws etc. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Honourable Income-tax Appellate Tribunal to decide this appeal according to law. 15. At the outset, the ld. Counsel for the assessee submitted that the grounds in this appeal are absolutely similar and identical with the grounds in ITA No. 597/PUN/2022 for A.Y. 2017-18. That in ground NO. 3, it is regarding disallowance of expenses made pursuant to ESOP scheme floated by the 10 ITA No. 597, 598 & 619 of 2022 A.Y. 2007-18, 2018-19 & 2008-09 BMC Software India assessee‟s parent company. However, for this ground and also for ground No. 2, the assessee wants to file additional evidences making the same submissions as were made for in ITA No. 597/PUN/2022 for A.Y. 2017-18. The ld. D.R conceded to these submissions. 16. Having heard the parties herein, since the facts and circumstances and the grounds raised in this appeal are similar and identical with the grounds raised in ITA No. 597/PUN/2022 for A.Y. 2017-18, our decision in ITA No. 597/PUN/2022 for A.Y. 2017-18 shall apply mutatis mutandis to ITA No. 598/PUN/2022 for A.Y. 2018-19. 17. In the combined result, appeal of the assessee in ITA No. 598/PUN/2022 for A.Y. 2018-19 is partly allowed for statistical purposes. 18. In ITA No. 619/PUN/2022 for A.Y. 2008-09 the assessee has raised the following grounds: “Based on the facts and circumstances of the case, BMC Software India Private Limited (hereinafter referred to as 'the Appellant') respectfully craves leave to prefer an appeal under section 253(1)(d) of the Income-tax Act, 1961 (hereinafter referred to as 'Act'), against the order dated 13 July 2022 passed by the Deputy Commissioner of Income Tax- Circle 1(1) (hereinafter referred to as 'AO') under section 143(3) read with section l44C(11) and Section 254 of the Act in pursuance of the directions dated 19 May 2022 issued by the Honorable Dispute Resolution Panel (hereinafter referred to as 'DRP'), on the following grounds: On the facts and in the circumstances of the case and in law, the Honorable DRP and consequentially the learned AO have: 1. Non-consideration of the directions given by the Hon'ble IT AT to the learned AO during the remand back proceedings in relation to computation of risk adjustment and thus exceeding the powers conferred Erred in disregarding the directions given by the Hon'ble ITAT and thereby rejecting the grant of risk adjustment while passing the Final Assessment Order; Consequentially, the Final Assessment Order passed is bad in law as it has resulted into transfer pricing adjustment of INR 13,81,22,786 in relation to international transaction of provision of software development services which is liable to be set side; In view of the above, as the learned AO has exceeded the powers conferred under the statute the said transfer pricing adjustment be deleted. 2. Non-consideration of the fact that the assessee is a risk mitigated entity and when the said finding has been recorded by the Hon'ble ITA T; there is no reason for not granting the risk adjustment Erred on the facts and circumstances of the case and in law in denying the risk 11 ITA No. 597, 598 & 619 of 2022 A.Y. 2007-18, 2018-19 & 2008-09 BMC Software India adjustment by providing irrational illogical reasons 3. Failed to appreciate that proceedings for AY 2006-07 post remand by the Hon'ble ITAT on the issue of granting risk adjustment never reached finality and therefore TPOIDRP has erred in applying the Ratio decidendi of AY 2006-07 to the impugned proceedings: 3.1 The learned TPO IDRP has held that in A Y 2006-07 in similar circumstances the risk adjustment had not been granted without appreciating the fact that application u/s 154 has never been disposed by TPO and hence ratio decidendi of A Y 2006- 07 is not applicable to these proceedings. 3.2 The DRP has very conveniently ignored the fact that the appellant has not produced application /order u/s 154 for AY 2006-07 , shrugging the responsibility that DRP is duty bound to call for explanation from TPO about pending proceedings for A Y 2006-07 being internal record of the department and no exclusive onus in this regards lies on the appellant. The action of TPO/DRP in rejecting adjustment is untenable on this ground. 3.3 The TPOIDRP erred in recording the same reasonings for non- granting risk adjustment in the original and remand proceedings and thereby sitting on the judgment of the Tribunal. Had the Tribunal appreciated the reasons of quantification of risk adjustment and difference between risk bearing and risk mitigating entity the issue could have set right in the original proceedings instead of remand. In view of this the action of TPO/DRP is bad in law in not following directions of the Hon'ble ITAT in spirit of the decision rendered by Hon'ble ITAT. 4. Initiation of penalty proceedings under see 271(I)(c) of the Act Erred in initiating penalty proceedings under section 271(1)(c) of the Act without appreciating the facts that transfer pricing adjustment to the international transactions of the Appellant is on account of difference of opinion in granting risk adjustment. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Honourable Income-tax Appellate Tribunal to decide this appeal according to law. “ 19. The ld. Counsel for the assessee, at the very outset submitted that all the grounds in this appeal pertains only to the issue of risk adjustment. He further submitted that this issue was first adjudicated in assessee‟s case in ITA No. 1425/PUN/2010 for A.Y. 2006-07, order dated 16-03-2016 where the Tribunal observed and held as follows: “42. Now, coming to the plea of assessee of allowing risk adjustment. It was the case of assessee before us that since it was pricing its services at cost plus mark- up and was making supplies to its associate enterprises, there was no risk taken by the assessee. However, risk adjustment was to be allowed in the case of comparables. The learned Authorized Representative for the assessee pointed out that the TPO nowhere in its order had stated that the comparables were risk mitigated. The learned Authorized Representative for the assessee in this regard placed reliance on the ratio laid down by Pune Bench of Tribunal in Schlumberger Global Support Centre Limited Vs. DDIT in ITA No.86/PN/2013, relating to assessment year 2009-10, order dated 30.10.2015. 43. The learned Departmental Representative for the Revenue on the other hand, pointed out that there were various types of risks, which have to be quantified and in the absence of details 12 ITA No. 597, 598 & 619 of 2022 A.Y. 2007-18, 2018-19 & 2008-09 BMC Software India provided by the assessee, the same is not to be allowed. 44. We have heard the rival contentions and perused the record. The plea raised vide this proposition is the allowance of risk adjustment to the assessee. The assessee claims that its business model was such, wherein it is being reimbursed the services at cost plus mark-up and there was no possibility of incurring any losses since it was providing the services to its associate enterprises totally. With regard to the comparables, the claim of the assessee before us is that they are normal risk bearing entities and the TPO at no place has given a finding that comparable concerns picked up were risk mitigated. In such circumstances, various Benches of Tribunal in the case of captive service provider are of the view that since captive service provider does not assume any risk or takes lesser risk as compared to the concerns, which undertake higher risk, then the risk adjustment is to be allowed. The learned Authorized Representative for the assessee in this regard has placed on record the methodology prescribed by Bangalore Bench of Tribunal in Philips Software Centre India Pvt. Ltd. Vs. ACIT (2008) 119 TTJ (Bang) 721. Further, the assessee has also submitted the risk adjustment to be made as per the methodology prescribed by Delhi Bench of Tribunal in M/s. Sony India (P) Ltd. Vs. DCIT (2008) 114 ITD 448. In view of the provisions of section 10B of the Act, we restore this issue back to the file of Assessing Officer / TPO to compute risk adjustment after affording reasonable opportunity to the assessee to work out and justify to the satisfaction of Assessing Officer, the risk adjustment it would be entitled to. We hold so. The issue raised is thus, allowed for statistical purposes.” 20. In the aforestated decision, the Tribunal, in view of the provisions of section 10B of the Act restored this issue back to the file of the A.O/T.P.O to compute the risk adjustments after providing reasonable opportunity to the assessee to work out and justify to the satisfaction of the A.O the risk adjustment it would be entitled to. Similarly, this was followed in A.Y. 2008-09 in ITA No. 2549/PUN/2012, order dated 19-08-2019 wherein it was held as follows: “14. The assessee has then sought risk adjustment. It was pointed out that the TPO did not grant any risk adjustment which was upheld by the ld. DRP. 15. Having heard both the sides and gone through the relevant material on record, we find that similar issue came up for consideration before the Tribunal in assessee’s own case for the A.Y. 2006-07. In para 44 of its order, the Tribunal has restored the matter to the file of the AO/TPO for computing the risk adjustment after granting reasonable opportunity of hearing to the assessee. In the absence of any distinguishing feature having been brought to our notice by the ld. DR respectively following the precedent, we set aside the impugned order on this score and remit the matter to the file of AO/TPO to follow the directions given by the Tribunal in its order for the A.Y. 2006-07.” 21. The Tribunal has clearly ordered while remitting the issue back to the file of the A.O/T.P.O that he should follow the directions given by the Tribunal in the order for A.Y. 2006-07. Now, it is the contention of the ld. Counsel that the A.O/T.P.O has not followed the directions given by the Tribunal regarding grant of risk adjustment. The ld. D.R conceded to this submission made by the ld. 13 ITA No. 597, 598 & 619 of 2022 A.Y. 2007-18, 2018-19 & 2008-09 BMC Software India Counsel for the assessee. We are taken aback by the proceedings conducted at the level of the A.O/T.P.O for not following the directions given by the Tribunal in this case. When for two years i.e. 2006-07 and 2008-09 this issue has been remitted to the file of the A.O/T.P.O to re-adjudicate as per directions of the Tribunal, the A.O./T.P.O is judicially duty bound to follow such directions and adjudicate the grant of risk adjustment. In view thereof, the matter is remanded back to the file of the A.O/T.P.O to follow the directions of the Tribunal and adjudicate the issue as per law while complying with the principles of natural justice. All the grounds raised in appeal for A.Y. 2008-09 are allowed for statistical purposes. The appeal of the assessee stands allowed for statistical purposes. 22. In the combined result, appeals in ITA No. 597/PUN/2022 & 598/PUN/2022 are partly allowed for statistical purposes whereas appeal in ITA No. 619/PUN/2022, is allowed for statistical purposes Order pronounced in the open Court on this 13 th day of February 2023. Sd/- sd/- (INTURI RAMA RAO) (PARTHA SARATHI CHAUDHURY) ACCOUNTANT MEMBER JUDICIAL MEMBER Pune; Dated, the 13 th day of February 2023 Ankam Copy of the Order forwarded to : 1. The Appellant. 2. The Respondent. 3. The CIT IT & TP Pune. 4. The DRP Panel 3, Bombay 5. D.R. ITAT „C‟ Bench 5. Guard File BY ORDER, Sr. Private Secretary ITAT, Pune. /// TRUE COPY /// 14 ITA No. 597, 598 & 619 of 2022 A.Y. 2007-18, 2018-19 & 2008-09 BMC Software India 1 Draft dictated on 10-02-2023 Sr.PS/PS 2 Draft placed before author 13-02-2023 Sr.PS/PS 3 Draft proposed and placed before the second Member JM/AM 4 Draft discussed/approved by second Member AM/JM 5 Approved draft comes to the Sr. PS/PS Sr.PS/PS 6 Kept for pronouncement on 13-02-2023 Sr.PS/PS 7 Date of uploading of order 13-02-2023 Sr.PS/PS 8 File sent to Bench Clerk 13-02-2023 Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order