Deputy Commissioner of Income tax, Pune V. M/s. Credit Pointe Services Pvt.Ltd, Pune

ITA 600/PUN/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0817 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 10-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJEEV GHEI
• Assessee Lawyers: KRISHNA GUJRATHI
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 43B; 143(3); 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 600 /P U N/201 7 / ASSESSMENT YEAR : 20 12 - 13 THE DY . COMMISSIONER OF INCOME TAX CIRCLE 1(1), PUNE . / APPELLANT VS. M/S. CREDIT POINTE SERVICES PVT. LTD., OFFICE 1B, 1 ST FLOOR, THE CEREBRUM IT PARK, KALYANI NAGAR, PUNE 41101 4 . / RESPONDENT PAN: A A CCC7203N / APPELLANT BY : SHRI SANJEEV GHEI / RESPONDENT BY : SHRI KRISHNA GUJRATHI / DATE OF HEARING : 25 . 0 3 .201 9 / DATE OF PRONOUNCEMENT: 2 7 . 0 3 .201 9 / ORDER PER SUSHMA CHOWLA, J M : THE APPEAL FILED BY REVENUE IS AGAINST ORDER OF CIT (A) - 13 , PUNE , DATED 2 7 . 12 .201 6 RELATING TO ASSESSMENT YEAR 20 12 - 13 AGAINST ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C(3 ) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE ORDER OF THE LD. COMMISSIONER OF INCOME - TAX(APPEAL) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. WHETHER ON TH E FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME - TAX(APPEAL) WAS CORRECT IN EXCLUDING EXCEL INFOWAYS LIMITED BY IGNORING THE FACT THAT ONLY SEGMENTAL PROFITABILITY OF THE BPO/IT SEGMENTS WERE TAKEN FOR COMPARISON ? ITA NO. 600 /P U N/20 1 7 M/S. CREDIT POINTE SERVICES PVT. LTD. . 2 3. THE LD. COMMISSIO NER OF INCOME - TAX(APPEAL) HAS ERRED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IN DELETING THE ADDITION OF ESIC PAYMENTS OF RS.2,38,996/ - BECAUSE THE SAME HAVE TO BE PAID WITHIN THE PRESCRIBED DATE AS PER THE PROVISIONS OF SECTION 36(I)(VA) OF THE INCOME TAX ACT 1961 AND IT IS NOT GOVERNED BY PROVISION OF SECTION 43B OF THE ACT IN VIEW OF CBDTS CIRCULAR NO.22/2015 AND ORDER OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT - II VS GUJARAT STATE ROAD CORPORATION. 4. FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING, THE ORDER OF THE LD. COMMISSIONER OF INCOME - TAX (APPEAL) MAY BE VACATED AND THAT OF THE AO RESTORED, 3. THE GROUND OF APPEAL NO.1 RAISED BY REVENUE IS GENERAL IN NATURE AND DOES NOT NEED ANY ADJUDICATION. 4. THE ISSUE RAISED VIDE GROUND OF APPEAL NO.2 IS AGAINST ORDER OF CIT(A) IN DIRECTING EXCLUSION OF EXCEL INFOWAYS LTD. WHILE BENCHMARKING INTERNATIONAL TRANSACTIONS OF THE ASSESSEE. 5. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE WAS WHOLLY OWNED SUBSIDIARY OF C REDIT POINTE INC. USA. THE ASSESSEE WAS ENGAGED IN PROVIDING IT ENABLED BACK OFFICE SERVICES RELATING TO DATA COMPILATION, CLEANING AND STRUCTURING. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS AS SOCIATED ENTERPRISES AMOUNTING TO 25.16 CRORES. THE ASSESSEE IN TP STUDY REPORT HAD STATED TO HAVE SELECTED CPM METHOD AS MOST APPROPRIATE METHOD FOR BENCHMARKING THE TRANSACTIONS. THE TRANSFER PRICING OFFICER (TPO) NOTED THAT THE ASSESSEE HAD COMPARED ITS PLI I.E. OP/OC WITH PLI OF CO MPARABLES. THE ANALYSIS OF CPM METHOD WAS NOT DONE AT ALL. THE PLI OF ASSESSEE WAS 9.95% AND THE MEAN MARGINS OF COMPARABLES WERE 9.31% AND HENCE, THE TRANSACTIONS WERE HELD TO BE AT ARM'S LENGTH PRICE. AS PER THE TPO, THE ASSESSEE HAD ACTUALLY TREATED TNMM METHOD AS MOST APPROPRIATE METHOD. THE TPO NOTED CERTAIN DEFECTS IN SELECTION PROCESS APPLIED BY THE ASSESSEE AND HENCE, FRESH SEARCH WAS CARRIED OUT WITH ITA NO. 600 /P U N/20 1 7 M/S. CREDIT POINTE SERVICES PVT. LTD. . 3 DIFFERENT FILTERS. IN FINAL ANALYSIS, THE TPO SELECTED CERTAIN NEW COMPANIES AS COMPARABLES. THE TPO APPLIED MARGINS OF FINALLY SELECTED FOUR COMPARABLES AFTER WORKING CAPITAL ADJUSTMENT AND THE AVERAGE WORKED OUT TO 29.45% AS AGAINST THE MARGINS SHOWN BY THE ASSESSEE AND PROPOSED AN ADJUSTMENT OF 4,45,51,783/ - . THE ASSESSING OFFICER PASSED AS SESSMENT ORDER, AGAINST WHICH THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) . 6. THE CIT(A) WAS OF THE VIEW THAT ONE OF THE CONCERNS FINALLY SELECTED I.E. EXCEL INFOWAYS LTD. WAS FUNCTIONALLY NOT COMPARABLE TO THE BUSINESS MODULE OF ASSESSEE AND DIRECTE D ITS EXCLUSION. THE RELEVANT FINDINGS OF CIT(A) ARE IN PARAS 2.5.4 TO 2.5.7 AT PAGES 22 AND 23 OF ITS ORDER. 7. THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 8 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT BESIDES THE SAID CONCERN BEING FUNCTIONALLY NOT COMPARABLE, THE MARGINS OF THE SAID CONCERN COULD NOT BE APPLIED AS THE SAID CONCERN WAS SHOWING FLUCTUATING MARGINS OVER A PERIOD OF YEARS. FURTHER, THE SAID CONCERN WAS IN THE PROCESS OF CLOSING DOWN ITS ITES SEGMENT AND HENCE, COULD NOT BE SELECTED AS FUNCTIONALLY COMPARABLE TO THE ASSESSEE. IN THIS REGARD, RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY PUNE BENCH OF TRIBUNAL IN EMERSON CLIMATE TECHNOLOGIES (INDIA) PVT. L TD. VS. DCIT IN ITA NOS.359/PUN/2016 & 2847/PU N/2016 ALONG WITH SA NOS.45 & 46/PUN/2018, RELATING TO ASSESSMENT YEARS 2011 - 12 AND 2012 - 13, ORDER DATED 25.04.2018. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACED RELIANCE ON THE ORDER OF ASSESSING OFFICER. ITA NO. 600 /P U N/20 1 7 M/S. CREDIT POINTE SERVICES PVT. LTD. . 4 10. WE HA VE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE LIMITED ISSUE WHICH IS ARISING VIDE GROUND OF APPEAL NO.2 FILED BY THE REVENUE IS AGAINST REJECTION OF A CONCERN EXCEL INFOWAYS LTD. BEING HELD AS FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE BY TH E CIT(A). FURTHER, THE SAID CONCERN WAS SHOWING FLUCTUATING MARGINS AND WAS ALSO IN THE PROCESS OF CLOSING DOWN ITS ITES SEGMENT AND HENCE, ITS SEGMENTAL DETAILS COULD NOT BE APPLIED FOR BENCHMARKING INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. 11. WE FIND THAT SIMILAR ISSUE OF EXCLUSION OF EXCEL INFOWAYS LTD. IN THE CASE OF CONCERN ENGAGED IN ITES SEGMENT AROSE BEFORE THE TRIBUNAL IN THE CASE OF EMERSON CLIMATE TECHNOLOGIES (INDIA) PVT. L TD. VS. DCIT (SUPRA) AND IT WAS HELD AS UNDER: - 16. COMI NG TO THE FIRST CONCERN EXCEL INFOWAYS LTD., WHEREIN THE ASSESSEE POINTS OUT THAT THE SAID CONCERN WAS NOT TO BE SELECTED AS COMPARABLE BECAUSE OF ITS FLUCTUATING MARGINS. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS FILED TABULATED DETAILS IN THIS REGARD, WHEREIN THE MARGINS OF SAID CONCERN BEING DRASTICALLY DROPPED FROM 267.31% IN EARLIER YEARS TO 41.48% DURING THE YEAR UNDER CONSIDERATION. THE YEAR - WISE MARGINS OF SAID CONCERN ARE AS UNDER: - FINANCIAL YEAR OP/TC MARGIN 2008 - 09 247.74% 2009 - 10 267.31% 2010 - 11 238.71% 2011 - 12 41.48% 17. FURTHER, THE SAID CONCERN HAD CLOSED DOWN ITS ITES AND BPO SEGMENT IN FINANCIAL YEAR 2011 - 12 ON ACCOUNT OF GLOBAL RECESSION. WE HOLD THAT THE SAID CONCERN WHICH IS IN THE PROCESS OF CLOSING DOWN ITS ITES SEGMENT AND ALSO BECAUSE OF THE FACTUM OF FLUCTUATING MARGINS, COULD NOT BE SELECTED AS FUNCTIONALLY COMPARABLE TO THE ASSESSEE. IN THIS REGARD, WE FIND SUPPORT FROM THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF GUJARAT IN PR. CIT VS. ALLSCRIPTS I NDIA PVT. LTD. IN INCOME TAX APPEAL NO.258 OF 2016 AND PUNE BENCH OF TRIBUNAL IN TIBCO SOFTWARE INDIA PVT. LTD. VS. DCIT IN ITA NOS.276/PUN/2015 & CROSS APPEAL IN ITA NO.334/PUN/2015, RELATING TO ASSESSMENT YEAR 2010 - 11, ORDER DATED 31.01.2017 AND QLOGIC I NDIA PVT. LTD. VS. DCIT IN ITA NO.227/PUN/2014, RELATING TO ASSESSMENT YEAR 2009 - 10, ORDER DATED 21.10.2014. ANOTHER FACTOR WHICH HAS BEEN POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IS LOW EMPLOYEE COST RATIO OF THE CONCERN EXCE L INFOWAYS LTD. ITA NO. 600 /P U N/20 1 7 M/S. CREDIT POINTE SERVICES PVT. LTD. . 5 12. ANOTHER ASPECT WHICH WAS ALSO NOTED BY THE TRIBUNAL IN EMERSON CLIMATE TECHNOLOGIES (INDIA) PVT. L TD. VS. DCIT (SUPRA) WAS THE LOW EMPLOYEE COST OF THE SAID CONCERN EXCEL INFOWAYS LTD. AND SUCH A CONCERN COULD NOT BE SELECTED AS COMPA RABLE. THE RELEVANT FINDINGS ARE IN PARA 18 OF THE SAID ORDER, WHICH READ AS UNDER: - 18. IN THE ITES SEGMENT, IT IS AN ADMITTED POSITION THAT THE SAME IS ORIENTED INVOLVING HIGH EMPLOYEE COST. IN CASE FILTER OF EMPLOYEE COST IS APPLIED AND CONCERN IS FO UND TO HAVE LOW EMPLOYEE COST ON SALES RATIO, THEN SUCH A CONCERN FAILS THE FILTER AND CANNOT BE SELECTED AS COMPARABLE. SUCH IS THE PROPOSITION LAID DOWN BY THE MUMBAI BENCH OF TRIBUNAL IN GOLDMAN SACHS SERVICES (P.) LTD. VS. ITO (SUPRA). APPLYING THE S AID PROPOSITION TO THE FACTS OF PRESENT CASE, WE FIND THAT THE ASSESSEE HAD SHOWN EMPLOYEES COST OF 47.75%, WHEREAS THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTS OUT THAT THE EMPLOYEE COST RATIO OF EXCEL INFOWAYS LTD. AND ALSO OF UNIVERSAL PRINT SYSTEMS LTD. WAS LESS THAN 25% AND HENCE, SUCH CONCERN COULD NOT BE SELECTED AS COMPARABLE. 13. APPLYING THE SAID RATIO TO THE FACTS OF PRESENT CASE, WE ALSO NOTE THE FACT THAT THE CIT(A) HAS DIRECTED EXCLUSION OF CONCERN EXCEL INFOWAYS LTD. ON THE GROUND THAT IT WAS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE. IN THE TOTALITY OF THE FACTS, WHERE THE CONCERN IS FUNCTIONALLY NOT COMPARABLE EVEN IF SEGMENTAL DETAILS ARE AVAILABLE, THE SAID DETAILS CANNOT BE APPLIED ESPECIALLY WHERE THE CONCERN HAS LO W EMPLOYEE COST AS AGAINST ITES SEGMENT, WHERE THE EMPLOYEE COST IS DEFINITELY ON HIGHER SCALE. FURTHER, THE SAID CONCERN EXCEL INFOWAYS LTD. HAS SHOWN FLUCTUATING MARGINS AND ALSO DURING THE YEAR IT WAS IN THE PROCESS OF CLOSING DOWN ITS ITES SEGMENT. A PPLYING THE SAID RATIO TO THE FACTS OF PRESENT CASE, WE UPHOLD THE ORDER OF CIT(A) IN THIS REGARD AND DISMISS THE GROUND OF APPEAL NO.2 RAISED BY REVENUE. 14. NOW, COMING TO THE LAST ISSUE RAISED VIDE GROUND OF APPEAL NO.3 I.E. AGAINST ORDER OF CIT(A) IN DELETING THE ADDITION ON ACCOUNT OF ESIC PAYMENT OF 2,38,996/ - , WHICH WAS DISALLOWED BY THE ASSESSING OFFICER ON THE GROUND THAT THE SAID PAYMENTS WERE NOT PAID WITHIN THE PRESCRIBED DATES AS PER PROVISIONS ITA NO. 600 /P U N/20 1 7 M/S. CREDIT POINTE SERVICES PVT. LTD. . 6 OF THE RELEVANT ACT. THE CIT(A) IN TURN, RELYI NG ON THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF BOMBAY IN CIT VS. GHATGE PATIL TRANSPORTS LTD. (2014) 368 ITR 749 (BOM) AND OTHER DECISIONS HAS HELD THAT WHERE THE CONTRIBUTIONS ARE PAID, THOUGH AFTER DUE DATE UNDER THE RESPECTIVE ACTS BEFORE THE DU E DATE OF FILING THE RETURN OF INCOME UNDER SECTION 139 OF THE ACT, THE SAME CANNOT BE DISALLOWED UNDER SECTION 36( I )(VA) OR 43B OF THE ACT . IN VIEW OF THE RATIO BEING LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN FAVOUR OF THE ASSESSEE, WE FIND NO MERIT IN THE GROUND OF APPEAL NO.3 RAISED BY REVENUE. THE GROUNDS OF APPEAL RAISED BY REVENUE ARE THUS, DISMISSED. 15. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 27 TH DAY OF MARCH , 201 9 . SD/ - SD/ - (ANIL CHATURVEDI) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 27 TH MARCH , 201 9 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A) - 13 , PUNE ; 4. THE P CIT - 1 , PUNE ; 5. 6. , , / DR A , ITAT, PUNE ; / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE