Appeal details
Counselvise Citation
[2021] 107 COUNSELVISE.COM (IT) 3010 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
5 year(s) 4 month(s) 29 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
04-10-2021
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
DB-B
Next Hearing Date
16-09-2021
Assessment Year
2011-2012
Appeal Filed On
05-05-2016
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD. BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER AND SHRI L . P . SAHU, ACCOUNTANT MEMBER (THROUGH VIRTUAL HEARING) ITA NO. 627 /HYD/20 16 & C.O. NO.35/HYD/2016 (ASSESSMENT YEAR : 20 11 - 12 ) DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(2), HYDERABAD. ..APPELLANT. VS. M/S. TNS INDIA PVT. LTD. HYDERABAD. PAN AABCN 2278F ..RESPONDENT /CROSS OBJECTOR . ITA NO. 636 /HYD/20 16 (ASSESSMENT YEAR : 2011 - 12 ) M/S. TNS INDIA PVT. LTD. HYDERABAD. .. APPELLA NT. VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE 2(2), HYDERABAD. .. RESPONDE NT. ASSESSEE BY : SHRI DEEPAK CHOPRA. RE VENUE BY : SHRI YVST SAI. ( CIT - D.R.) DATE OF HEARING : 16.09 . 2021. DATE OF PRONOUNCEMENT : 04. 10 .2021. O R D E R PER SHRI S.S. GODARA, J.M. : THIS REVENUES APPEAL ITA NO.627/HYD/2016 ALONG WITH ASSESSEE'S CROSS OBJECTION C.O. NO.35/HYD/2016 FOLLOWED BY CROSS APPEAL ITA NO.636/HYD/2016 FOR 2 ITA NO S . 627 & 636/HYD/2016 & C.O. NO.35/HYD/2016 ASSESSMENT YEAR 2011 - 12 ARISE AGAINST THE ACIT, CIRCLE 2(2), HYDERABADS ASSESSMENT DT.29.02.2016 FRAMED IN FURTHERANCE TO THE DISPUTE RESOLUTION PANELS (DRP - I) BANGALOR ES DIRECTION S DT.29.02.2016 PASSED IN CASE NO. INVOLVING PROCEEDINGS U/S.143(3) R.W.S. 92CA(4) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 ('THE ACT') . HEARD BOTH THE PARTIES . C ASE FILE S PERUSED. 2. WE ADVERT TO THE REVENUES APPEAL ITA 627/HYD/2016, FIRST OF ALL RAISING THE FOLLOWING SUBSTANTIVE GROUNDS : 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE HONBLE DRP WAS JUSTIFIED IN EXCLUDING INFOSYS BPO LTD. ON THE GROUNDS OF HIGH TURNOVER WHICH IS CONTRARY TO RULE 10B(2) WHI CH PRESCRIBES COMPARABILITY OF INTERNATIONAL TRANSACTIONS WITH UNCONTROLLED TRANSACTIONS WITH REFERENCE TO FUNDS PERFORMED, ASSET EMPLOYED AND RISK ASSUME. 2. WHETHER THE DRP FAILED TO APPRECIATE THAT (I) IN SERVICE INDUSTRY THERE IS NO LINKAGE WHATSOEVER BETWEEN THE PROFITS AND TURNOVER. (II) UNLESS AND UNTIL IT IS BROUGHT O RECORD THAT THE TURNOVER OF SUCH COMPANIES HAD UNDUE INFLUENCE ON THE MARGINS, IT IS NOT THE GENERAL RULE TO EXCLUDE THE SAME, THERE IS NO ECONOMIC RATIONALE BACKED UP WITH ANY STATISTICAL ANALYSIS TO SAY THAT HIGHER TURNOVER COMPANIES OR COMPANIES WITH BRAND HAVE BETTER MARGINS THAN LOW TURNOVER COMPANIES. 3 ITA NO S . 627 & 636/HYD/2016 & C.O. NO.35/HYD/2016 (III) IN THE BUSINESS MODEL USED IN ITES SECTOR IN INDIA, THE OPERATIONAL SIZE HAS NO IMPACT ON THE PROFIT MARGI NS WHEN TNMM IS THE MAM. (IV) THAT HIGH OR LOW TURNOVER DO NOT INFLUENCE THE MARGINS OF THE COMPARABLES. 3. WHETHER THE DRP FAILED TO APPRECIATE THE FACT IN EXCLUDING JEEVAN SCIENTIFIC TECHNOLOGY LIMITED, WHEN BOTH SEGMENTS BPO AND ERP FALL UNDER ITES. 4. WHETHER THE DRP IS JUSTIFIED IN EXCLUDING TCS ESERVE LTD. WITHOUT VERIFYING THE FACT THAT IT HAS NOT FAILED THE REVENUE INCOME FILTER. 5. WHETHER DRP IS JUSTIFIED IN EXCLUDING MASTIFF TECHNOLOGY PVT. LTD. ONLY FOR THE REASON OF FLUCTUATION IN PROVISIONS FOR DOUBTFUL DEBTS AND HOLDING THAT THIS IS AN EXTRA ORDINARY SITUATION. 6. WHETHER THE DRP IS JUSTIFIED IN EXCLUDING E4E HEALTHCARE BUSINESS SERVICES PVT. LTD. ONLY FOR THE REASON THAT THERE IS INCONSISTENCY IN ACCOUNTING AS IN EARLIER YEAR P ROVISION FOR BAD DEBTS WAS THERE AND FOR CURRENT YEAR IT IS NOT THERE. 3. THE REVENUES FOREGOING FIRST TWIN SUBSTANTIVE GROUNDS SEEK TO REVIVE THE TRANSFER PRICING OFFICERS (TPO) ACTION INCLUDING M/S. INFOSYS BPO LIMITED AS A COMPARABLE ENTITY IN THE ASSESSEE'S IT ENABLED SERVICES (ITES) SEGMENT IN HIS SECTION 92CA(3) ORDER DT.8.1.2015. LEARNED CIT - DR S VEHEMENT CONTENTION BEFORE US THAT JUST BECAUSE THE 4 ITA NO S . 627 & 636/HYD/2016 & C.O. NO.35/HYD/2016 FOREGOING ENTITY M/S. INFOSYS BPO LIMITED IS HAVING HIGH TURN OVER DOES NOT IPSO FACTO RENDER IT INELIGIBLE FOR INCLUSION IN THE ARRAY OF COMPARABLES SINCE WE ARE DEALING WITH SERVICE SECTOR SEGMENT ONLY. HE QUOTE HONBLE DELHI HIGH COURTS DECISION IN PCIT - 2 VS. M/S. CHRYS CAPITAL INVESMENT ADVISORS PVT LTD 376 ITR 183 (DEL) AND M/S. SOCIETY GEN ERAL GLOBAL SOLUTION CENTRE LIMITED 69 TAXMAN.COM 336 (BANG). WE FIND NO MERIT IN THE ASSESSEE'S FORMER TWIN SUBSTANTIVE GROUND S SINCE THE DRP HEREIN HAS DIRECTED EXCLUSION OF M/S. INFOSYS BPO LIMITED NOT ON LY ON THE BASIS OF TURNOVER BUT DUE TO ITS BRAND VALUE, DIVERSIFIED ACTIVITY AS OTHER FUNCTIONAL DISSIMILARITY AS WELL . THIS TRIBUNAL CO - ORDINATE BENCH DECISION S IN ASSESSEE'S CASES ITSELF FOR ASSESSMENT YEAR 2008 - 09 AND 2009 - 10 HAVE ALSO DIRECTED M/S. INFOSYS BPO LIMITED S EXCLUSION IN THE VERY SEGMEN T. AND THAT THE REVENUE HAS NOT BEEN ABLE TO PIN POINT ANY CHANGE IN THE CORRESPONDING FACTS IN ALL THESE ASSESSMENT YEARS. WE THEREFORE UPHOLD LEARNED DRPS DIRECTION 5 ITA NO S . 627 & 636/HYD/2016 & C.O. NO.35/HYD/2016 ORDERING EXCLUSION OF M/S. INFOSYS BPO LIMITED FROM THE ARRAY OF COMPARABLES . 4. NEXT COMES THE REVENUES THIRD SUBSTANTIVE GROUND AVERS THAT THE DRP HAS ERRED IN LAW AND ON FACTS IN EXCLUDING M/S. JEEVAN SCIENTIFIC TECHNOLOGY LIMITED ON THE GROUND THAT IT HAD FAILED TO SATISFY THE TURNOVER FILTER DESPITE THE FACT THAT THE SAID ENTITY HAD DERIVED INCOME BOTH FROM BPO OPERATION AS WELL AS E RP SEGMENT. WE FIND THAT THE REVENUES INSTANT ARGUMENTS ARE AGAINST THE FACTS ON RECORD WHEREIN IT HAS BEEN FOUND THAT THIS ENTITY HAD DERIVED INCOME OF RS.79.21 LAKHS FORM BPO OPERATION ONLY AND NO REVENUE FROM ERP SEGMENT AS AGAINST THE TURNOVER LIMIT OF RS.1 CRORE SET BY THE TPO IN HIS ANALYSIS. WE THEREFORE DECLINE THE R EVENUE INSTANT THIRD SUBSTANTIVE GROUND AS WELL. 5. WE NEXT PROCEED TO DEAL WITH REVENUES FORTH SUBSTANTIVE GROUND THAT M/S. TCS E - SERVE LIMITED ALSO DESERVES TO BE INCLUDED IN T HE ARRAY OF COMPARABLES. WE NOTE FROM A PERUSAL OF THE DRP S DIRECTION S IN PARA 9 THAT 6 ITA NO S . 627 & 636/HYD/2016 & C.O. NO.35/HYD/2016 ALTHOUGH THE LEARNED PANEL HAD INVOKED IN CHRYS CAPITAL (SUPRA) WHILST REJECTING THE ASSESSEE'S TURNOVER ARGUMENT BUT IT HAS THEREAFTER RECORDED A FINDING OF THE FACT T HAT M/S. TCS E - SERVE LIMITED WAS ENGAGED IN THE BUSINESS OF PROVIDING IT ENABLED SERVICES, BPO SERVICES PRIMARILY TO THE CITI GROUP CO. INTRODUCED GLOBALLY AND THE TRANSACTION INCLUDES A BROAD SPECTRUM OF ACTIVITY INVOLVING PROCESSING, COLLECTION, CUSTOME R CARE AND PAYMENT IN RELATION TO THE SERVICES RENDERED BY THE SAID GROUP TO ITS CORPORATE AND RETAIL CLIENTS. THE SAID COMPANY WAS FURTHER FOUND TO HAVE BEEN PROVIDED TECHNICAL SERVICES INVOLVING SOFTWARE TESTING, VERIFICATION AND VALIDATION OF SOFTWARE AT THE TIME OF IMPLEMENTATION AND DATA CENTRE MANAGEMENT ACTIVITY RENDERING IT FUNCTIONAL DISSIMILARIT IES THAN THE ASSESSEE'S S EGMENT OF IT ENABLED SERVICES (SUPRA). WE THUS DECLINE THE R EVENUES PLEADINGS WHICH IN FACT DO NOT EVEN CHALLENGE THE CORRECTNE SS OF THE SAID ENTITY FUNCTIONAL DISSIMILARITY AS HELD BY THE LEARNED PANEL. 7 ITA NO S . 627 & 636/HYD/2016 & C.O. NO.35/HYD/2016 6. THE REVENUES NEXT SUBSTANTIVE GROUND IS THAT THE DRP HAS ERRED IN LAW AND ON FACTS IN DIRECTING EXCLUSION OF M/S. MASTIVE TECHNOLOGY PVT. LTD. FOR THE REASON OF FLUCTUAT ION IN PROVISION FOR DOUBTFUL DEBTS THEREBY HOLDING IT AS AN EXTRAORDINARY SITUATION. LEARNED CIT - DR FAILS TO DISPUTE THAT BECAUSE OF THE SAID EXTRAORDINARY SITUATION OF PROVISION FOR DOUBTFUL DEBTS ONLY, THE SAID ENTITYS MARGIN HAS COME DOWN FROM 21.78% TO 2.28%. THE FACTUAL POSITION IS NO DIFFERENT REGARDING LAST ENTITY M/S. E 4E HEALTHCARE BUSINESS SERVICES PVT. LTD. WHEREIN NOT ONLY THE LEARNED PANEL BUT ALSO THIS TRIBUNAL'S ORDER IN A.Y. 2010 - 11 PAGES 788 TO 796 OF PAPER BOOK HAS ALSO DECIDED THE ISSUE IN ASSESSEE'S FAVOUR. AND THAT THE ASSESSEE HAS ALSO FILED FINANCIALS OF THIS FOREGOING LATTER ENTITY SHOWING VARIA TION AS PER SCHEDULE - I OF THE SIGNIFICANT ACCOUNTING POLICY. LEANED AUTHORIZED REPRESENTATIVE LASTLY SOUGHT TO HIGHLIGHT THE FACT THAT BOTH THE INSTANT LATTER TWIN ENTITIES HAVE BEEN REJECTED IN THE LEARNED PANEL DETAILED DISCUSSION BECAUSE OF THE FACT TH AT THEY BEAR BUSINESS RISK ( S ) IN THE IT ENABLED SERVICES 8 ITA NO S . 627 & 636/HYD/2016 & C.O. NO.35/HYD/2016 SEGMENT WHEREAS THIS ASSESSEE IS A CAPITAL SERVICE PROVIDER ONLY. WE THEREFORE REJECT LEARNED CIT - DRS ARGUMENT S QUOTING 33 TAXMAN.COM 107 (MUM) THAT BAD DEBTS ARE AN OPERATIONAL ITEM IN LIGHT OF THE FACT THAT THE TPOS COMPUTATION S A NNEXURE WITH HIS ORDER ; HAD ERRONEOUSLY INCLUDED THE BAD DEBTS IN ISSUE AND UPH O LD LEARNED DRP S DIRECTIONS EXCLUSION THEREOF AS PER THE FOREGOING INCONSISTENCY IN ACCOUNTING PRACTICE. THE REVENUE FAILS IN ALL OF SUBSTANTIVE GROUNDS. SO IS THE OUTCOME OF ITS MAIN APPEAL ITA NO.627/HYD/2016. 7. LEARNED COUNSELS NEXT STATED AT BAR THAT THE ASSESSEE'S C.O. NO.35/HYD/2016 IN REVENUES FOREGOING APPEAL IS ONLY SUPPORT IVE OF THE DRPS DIRECTION S UNDER CHALLENGE. W E THEREFORE REJECT THIS C.O. NO.35/HYD/2016 AS RENDERED INFRUCTUOUS. 8. WE NOW TAKE UP THE ASSESSEE'S CROSS APPEAL ITA NO.636/HYD/2016. ITS SECOND SUBSTANTIVE GROUND CHALLENGES THE ASSESSING OFFICERS ACTION DISALLOWING THE OVERHEAD AND TRADEMARK LICE NCE FEES OF RS.3,26,80,824/ - 9 ITA NO S . 627 & 636/HYD/2016 & C.O. NO.35/HYD/2016 AND RS.15,40,225/ - ; RESPECTIVELY ON THE GROUND THAT IT HAD NOT FILED ANY OBJECTION CORRESPONDING DETAILS DESPITE THE DRPS REMAND DIRECTIONS TO THIS EFFECT. THE ASSESSEE HAS PLACED BEFORE US THE CORRESPONDING INVOICES IN PAPER BOOK PAGES 70 - 71 AND 198 ALONG WITH THE ASSESSING OFFICERS CONSEQUENTIAL ORDER FOR ASSESSMENT YEAR 2003 - 04 AND 2009 - 10 NOT MAKING ANY SUCH DISALLOWANCE IN LIGHT OF THE CORRESPONDING AGREEMENT AND INVOICES. FACED WITH THIS SITUATION, WE DEEM IT APPROPRIA TE TO RESTORE THE INSTANT ISSUE BACK TO THE ASSESSING OFFICER FOR HIS AFRESH FACTUAL VERIFICATION AS PER LAW WITHIN THREE EFFECTIVE OPPORTUNITIES OF HEARING SUBJECT TO THE CONDITION THAT THE ASSESSEE ITSELF SHALL FILE ALL THE DOCUMENTARY EVIDENCE BY ELECTR ONIC MODE AS WELL AS REGISTERED POST. ORDERED ACCORDINGLY. TH IS SECOND SUBSTANTIVE GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 9. NEXT COMES THE ASSESSEE'S THIRD SUBSTANTIVE GROUND REGARDING CAPITAL EXPENDITURE ON SOFTWARE LICENSE FEES DISALLOWANCE O F RS.2,05,96,523 MADE BY THE ASSESSING 10 ITA NO S . 627 & 636/HYD/2016 & C.O. NO.35/HYD/2016 OFFICER ON THE GROUND THAT IT T HE ASSESSEE HAD NOT FILED ANY OBJECTION S TO THIS EFFECT BEFORE THE DRP. LEARNED CIT - DR FAILS TO DISPUTE THAT THE DRPS DETAILED DISCUSSION REGARDING ASSESSEE'S OBJECTION NO.10 IN PARA 2.10 PAGE 14 HAD CLEARLY DIRECTED THE ASSESSING OFFICER TO GRANT DEPRECIATION @ 60% IN VIEW OF THE TRIBUNAL'S FINDINGS IN PRECEDING ASSESSMENT YEARS. WE THEREFORE ALLOW THE ASSESSEE'S INSTANT SUBSTANTIVE GROUND IN PRINCIPLE AND LEAVE IT OPEN FOR THE ASS ESSING OFFICER TO FRAME CONSEQUENTIAL COMPUTATION AS PER LAW. 10. NEXT COMES THE ASSESSEE'S ADDITIONAL GROUND THAT WITHOUT PREJUDICE TO GROUND NO.3, THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN NOT ALLOWING DEDUCTION U/S. 10A OF THE AC T ON EXPENDITURE TOWARDS SOFTWARE LINCENCE FEE DISALLOWED IN THE ASSESSMENT ORDER OF RS.1,81,14,801/ - RELATING TO STPI UNIT OF THE COMPANY. THE SAME IS ADMITTED BEING AN ALTERNATE PLEA; WITHOUT PREJUDICE TO THE FOREGOING THIRD SUBSTANTIVE GROUND , AND R ESTORED BACK TO THE ASSESSING OFFICER AS PER LAW IN LIGHT OF 11 ITA NO S . 627 & 636/HYD/2016 & C.O. NO.35/HYD/2016 THE RELEVANT FACTS AND THE CORRESPONDING FACTUAL POSITION IN PR E CEDING AND SUCCEEDING ASSESSMENT YEARS. ORDERED ACCORDINGLY. THE ASSESSEE'S INSTANT CROSS APPEAL ITA NO.636/HYD /2016 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES IN ABOVE TERMS. 11. TO SUM UP, REVENUES APPEAL 637/HYD/2016 IS DISMISSED; THE ASSESSEE'S C ROSS OBJECTION NO.35/HYD/2016 IS DISMISSED AS RENDERED INFRUCTUOUS AND ITS CROSS APPEAL 636/HYD/2016 IS PARTLY ALL OWED FOR STATISTICAL PURPOSES IN FOREGOING TERMS. A COPY OF THIS COMMON ORDER BE PLACED IN THE RESPECTIVE CASE FILES. ORDER PRONOUNCED IN THE OPEN COURT ON 4TH OCT . , 2021. SD/ - SD/ - (L .P. SAHU) (S.S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DT. 04 . 10 .2021. * REDDY GP 12 ITA NO S . 627 & 636/HYD/2016 & C.O. NO.35/HYD/2016 COPY TO : 1. M/S. TNS INDIA PVT. LTD., SHRI PRASHANTHI SAI TOWERS, PLOT NO.68, NAGARJUNA HILLS, PANJAGUTTA, HYDERABAD - 500 082 2. DCIT / ACIT, CIRCLE 2(2), HYDERABAD. 3. PR. C I T - 5 , HYDERABAD. 4. CIT(APPEALS) - HYDERABAD. 5. DR, ITAT, HYDERABAD. 6. GUARD FILE. BY ORDER SR. PVT. SECRETARY, ITAT, HYDERABAD.
